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FIRST BUSINESS FINANCIAL SERVICES, INC.

FIRST BUSINESS FINANCIAL SERVICES, INC.FBIZEarnings & Financial Report

Nasdaq · economics of banking

The PNC Financial Services Group, Inc. is an American bank holding company and financial services corporation based in Pittsburgh, Pennsylvania. Its banking subsidiary, PNC Bank, operates in 27 states and the District of Columbia, with 2,629 branches and 9,523 ATMs. PNC Bank is one of the largest banks in the US by assets and by number of branches, deposits, and ATMs.

What changed in FIRST BUSINESS FINANCIAL SERVICES, INC.'s 10-K — 2022 vs 2023

Top changes in FIRST BUSINESS FINANCIAL SERVICES, INC.'s 2023 10-K

467 paragraphs added · 490 removed · 342 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

97 edited+57 added−38 removed120 unchanged
(together with all of its subsidiaries, collectively referred to as the “Corporation,” “FBFS,” “we,” “us,” or “our”) is a registered bank holding company originally incorporated in 1986 under the laws of the State of Wisconsin and is engaged in the commercial banking business through its wholly-owned bank subsidiary, First Business Bank (“FBB” or the “Bank”), headquartered in Madison, Wisconsin.
(together with all of its subsidiaries, collectively referred to as the “Corporation,” “FBFS,” “we,” “us,” or “our”) is a registered bank holding company originally incorporated in 1986 under the laws of the State of Wisconsin and is engaged in the commercial banking business through its wholly-owned bank subsidiary, First Business Bank (collectively with its subsidiaries “FBB” or the “Bank”), headquartered in Madison, Wisconsin.
Commercial Banking Products and Services Commercial Lending We strive to meet the specific commercial lending needs of small- to medium-sized companies in our primary markets in Wisconsin, Kansas, and Missouri, predominantly through lines of credit and term loans to businesses with annual sales of up to $150 million.
Commercial Banking Products and Services We strive to meet the specific commercial lending needs of small- to medium-sized companies in our primary markets in Wisconsin, Kansas, and Missouri, predominantly through lines of credit and term loans to businesses with annual sales of up to $150 million.
Depending upon the capital category to which an institution is assigned, the regulators’ corrective powers include: (i) requiring the institution to submit a capital restoration plan; (ii) limiting 9 the institution’s asset growth and restricting its activities; (iii) requiring the institution to issue additional capital stock (including additional voting stock) or to sell itself; (iv) restricting transactions between the institution and its affiliates; (v) restricting the interest rate that the institution may pay on deposits; (vi) ordering a new election of directors of the institution; (vii) requiring that senior executive officers or directors be dismissed; (viii) prohibiting the institution from accepting deposits from correspondent banks; (ix) requiring the institution to divest certain subsidiaries; (x) prohibiting the payment of principal or interest on subordinated debt; and (xi) ultimately, appointing a receiver for the institution.
Depending upon the capital category to which an institution is assigned, the regulators’ corrective powers include: (i) requiring the institution to submit a capital restoration plan; (ii) limiting the institution’s asset growth and restricting its activities; (iii) requiring the institution to issue additional capital stock (including additional voting stock) or to sell itself; (iv) restricting transactions between the institution and its affiliates; (v) restricting the interest rate that the institution may pay on deposits; (vi) ordering a new election of directors of the institution; (vii) requiring that senior executive officers or directors be dismissed; (viii) prohibiting the institution from accepting deposits from correspondent banks; (ix) requiring the institution to divest certain subsidiaries; (x) prohibiting the payment of principal or interest on subordinated debt; and (xi) ultimately, appointing a receiver for the institution.
Additionally, bank holding companies that meet certain eligibility requirements prescribed by the BHCA and elect to operate as financial holding companies may engage in, or own shares in companies engaged in, a wider range of non-banking 10 activities, including securities and insurance underwriting and sales, merchant banking, and any other activity that the Federal Reserve, in consultation with the Secretary of the Treasury, determines by regulation or order is financial in nature or incidental to any such financial activity or that the Federal Reserve determines by order to be complementary to any such financial activity and does not pose a substantial risk to the safety or soundness of FDIC-insured institutions or the financial system generally.
Additionally, bank holding companies that meet certain eligibility requirements prescribed by the BHCA and elect to operate as financial holding companies may engage in, or own shares in companies engaged in, a wider range of non-banking activities, including securities and insurance underwriting and sales, merchant banking, and any other activity that the Federal Reserve, in consultation with the Secretary of the Treasury, determines by regulation or order is financial in nature or incidental to any such financial activity or that the Federal Reserve determines by order to be complementary to any such financial activity and does not pose a substantial risk to the safety or soundness of FDIC-insured institutions or the financial system generally.
As a general matter, the Federal Reserve has indicated that the board of directors of a bank holding company should eliminate, defer, or significantly reduce dividends to shareholders if: (i) the company’s net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (ii) the prospective rate of earnings retention is inconsistent with the company’s capital needs and overall current and prospective financial condition; or (iii) the company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.
As a general matter, the Federal Reserve has indicated that the board of directors of a bank holding company should eliminate, defer, or significantly reduce dividends to shareholders if: (i) the company’s net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (ii) the 10 prospective rate of earnings retention is inconsistent with the company’s capital needs and overall current and prospective financial condition; or (iii) the company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.
As a result, our growth and earnings performance may be affected not only by management decisions and general economic conditions, but also by the requirements of federal and state statutes and by the regulations and policies of various bank regulatory agencies, including our primary regulator, the Board of Governors of the Federal Reserve System (“Federal Reserve”), the Bank’s state regulator, the Wisconsin Department of Financial Institutions (“WDFI”), and its primary federal regulator, the FDIC.
As a result, our growth and earnings performance may be affected not only by management decisions and general economic conditions, but also by the requirements of federal and state statutes and by the regulations and policies of various bank regulatory agencies, including our primary regulators, the Board of Governors of the Federal Reserve System (“Federal Reserve”), the Bank’s state regulator, the Wisconsin Department of Financial Institutions (“WDFI”), and its primary federal regulator, the FDIC.
Federal law and FDIC regulations also prohibit FDIC-insured state banks and their 12 subsidiaries, subject to certain exceptions, from engaging as principal in any activity that is not permitted for a national bank unless the bank meets, and continues to meet, its minimum regulatory capital requirements and the FDIC determines that the activity would not pose a significant risk to the DIF.
Federal law and FDIC regulations also prohibit FDIC-insured state banks and their subsidiaries, subject to certain exceptions, from engaging as principal in any activity that is not permitted for a national bank unless the bank meets, and continues to meet, its minimum regulatory capital requirements and the FDIC determines that the activity would not pose a significant risk to the DIF.
One test, referred to as the Liquidity Coverage Ratio (“LCR”), is designed to ensure that the banking entity has an adequate stock of unencumbered high-quality liquid assets that can be converted easily and immediately in private markets into cash to meet liquidity needs for a 30-calendar day liquidity stress scenario.
One test, referred to as the Liquidity Coverage Ratio, is designed to ensure that the banking entity has an adequate stock of unencumbered high-quality liquid assets that can be converted easily and immediately in private markets into cash to meet liquidity needs for a 30-calendar day liquidity stress scenario.
The CFPB has broad rulemaking authority for a wide range of consumer protection laws that apply to all providers of consumer products and services, including the Bank, as well as the authority to prohibit “unfair, deceptive or abusive” acts and practices. The CFPB has examination and enforcement authority over providers with more than $10 billion in assets.
The CFPB has broad rulemaking authority for a wide range of consumer protection laws that apply to all providers of consumer products and services, including the Bank, as well as the authority to prohibit 15 “unfair, deceptive or abusive” acts and practices. The CFPB has examination and enforcement authority over providers with more than $10 billion in assets.
Furthermore, taxation laws administered by the Internal Revenue Service (“IRS”) and state taxing authorities, accounting rules developed by the Financial Accounting Standards Board (“FASB”), securities laws administered by the SEC and state securities authorities, and anti-money laundering laws enforced by the U.S. Department of the Treasury (“Treasury”) have an impact on our business.
Furthermore, taxation laws administered by the Internal Revenue Service (“IRS”) and state taxing authorities, accounting rules developed by the Financial Accounting Standards Board (“FASB”), securities laws administered by the SEC and state securities authorities, and anti-money laundering 6 laws enforced by the U.S. Department of the Treasury (“Treasury”) have an impact on our business.
The Federal Reserve also possesses enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations. Among these powers is the ability to proscribe the payment of dividends by banks and bank holding companies.
The Federal Reserve possesses enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations. Among these powers is the ability to proscribe the payment of dividends by banks and bank holding companies.
The CRA requires the Bank to have a continuing and affirmative obligation in a safe and sound manner to help meet the credit needs of the entire community, including low- and moderate-income neighborhoods. Federal regulators regularly assess the Bank’s record of meeting the credit needs of its communities.
The CRA requires the Bank to have a continuing and affirmative obligation in a safe and sound manner to help meet the credit needs of the entire community, including low- and moderate-income (“LMI”) neighborhoods. Federal regulators regularly assess the Bank’s record of meeting the credit needs of its communities.
In July 2013, the U.S. federal banking agencies approved the implementation of the Basel III regulatory capital reforms in pertinent part, and, at the same time, promulgated rules effecting certain changes required by the Dodd-Frank Act (the “Basel III Rule”).
The Basel III Rule . In July 2013, the U.S. federal banking agencies approved the implementation of the Basel III regulatory capital reforms in pertinent part, and, at the same time, promulgated rules effecting certain changes required by the Dodd-Frank Act (the “Basel III Rule”).
In reaction to the global financial crisis beginning in 2008 (the “global financial crisis”), and particularly following the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), we experienced 7 heightened regulatory requirements and scrutiny.
In reaction to the global financial crisis beginning in 2008 (the “global financial crisis”), and particularly following the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), we experienced heightened regulatory requirements and scrutiny.
On December 19, 2018, the FDIC adopted a final rule on the treatment of reciprocal deposits pursuant to the Regulatory Relief Act. The final rule, effective March 6, 2019, exempts certain reciprocal deposits from being 13 considered as brokered deposits for certain insured institutions.
On December 19, 2018, the FDIC adopted a final rule on the treatment of reciprocal deposits pursuant to the Regulatory Relief Act. The final rule, effective March 6, 2019, exempts certain reciprocal deposits from being considered as brokered deposits for certain insured institutions.
These laws 14 require the Bank to periodically disclose their privacy policies and practices relating to sharing such information and permit consumers to opt out of their ability to share information with unaffiliated third parties under certain circumstances.
These laws require the Bank to periodically disclose their privacy policies and practices relating to sharing such information and permit consumers to opt out of their ability to share information with unaffiliated third parties under certain circumstances.
The legislation also directed the Federal Reserve to promulgate rules prohibiting excessive compensation paid to executives of bank holding companies, regardless of whether such companies are publicly traded. 11 The Bank General. The Bank is a Wisconsin state-chartered bank.
The legislation also directed the Federal Reserve to promulgate rules prohibiting excessive compensation paid to executives of bank holding companies, regardless of whether such companies are publicly traded. The Bank General. The Bank is a Wisconsin state-chartered bank.
The other test, known as the Net Stable Funding Ratio (“NSFR”), is designed to promote more medium- and long-term funding of the assets and activities of FDIC-insured institutions over a one-year horizon.
The other test, known as the Net Stable Funding Ratio, is designed to promote more medium- and long-term funding of the assets and activities of FDIC-insured institutions over a one-year horizon.
As a bank-owned, asset-based lender with strong underwriting standards, our team is positioned to provide cost-effective financing solutions to companies which do not have the established, stable cash flows necessary to qualify for traditional commercial lending products. These borrowing relationships generally range between $2 million and $15 million with terms of 24 to 60 months.
As a bank-owned, asset-based lender with strong underwriting standards, our team is positioned to provide cost-effective financing solutions to companies which do not have the established, stable cash flows necessary to qualify for traditional commercial lending products. These borrowing relationships generally range between $2 million and $18 million with terms of 24 to 60 months.
Quade had been serving as the Corporation’s Deputy Chief Credit Officer since October 2019. He also currently serves as a director for our subsidiary FBSF. Mr. Quade has over 30 years of experience in banking at publicly traded and privately-owned institutions and has led successful lending teams in commercial banking, investment real estate, equipment leasing, and treasury management.
Quade had been serving as the Corporation’s Deputy Chief Credit Officer since October 2019. He also currently serves as a director for our subsidiary FBSF. Mr. Quade has over 35 years of experience in banking at publicly traded and privately-owned institutions and has led successful lending teams in commercial banking, investment real estate, equipment leasing, and treasury management.
Well-Capitalized Requirements . The ratios described above are minimum standards in order for banking organizations to be considered “adequately capitalized.” Bank regulatory agencies uniformly encourage banks to hold more capital and be “well-capitalized” and, to that end, federal law and regulations provide various incentives for banking organizations to maintain regulatory capital at levels in excess of minimum regulatory requirements.
The ratios described above are minimum standards in order for banking organizations to be considered “adequately capitalized.” Bank regulatory agencies uniformly encourage banks to hold more capital and be 8 “well-capitalized” and, to that end, federal law and regulations provide various incentives for banking organizations to maintain regulatory capital at levels in excess of minimum regulatory requirements.
As of December 31, 2022: (i) the Bank is not subject to a directive from the WDFI or the FDIC to increase its capital; and (ii) the Bank was well-capitalized, as defined by FDIC regulations. Additionally, the Corporation had regulatory capital in excess of the Federal Reserve’s requirements as of December 31, 2022. Prompt Corrective Action .
As of December 31, 2023: (i) the Bank is not subject to a directive from the WDFI or the FDIC to increase its capital; and (ii) the Bank was well-capitalized, as defined by FDIC regulations. Additionally, the Corporation had regulatory capital in excess of the Federal Reserve’s requirements as of December 31, 2023. Prompt Corrective Action .
These restrictions have not had, and are not currently expected to have, a material impact on the operations of the Bank. Insider Transactions.
These restrictions have not had, and are not currently expected to have, a material impact on the operations of the Bank. 12 Insider Transactions.
There are no family relationships between any directors or executive officers of FBFS. Corey A. Chambas, age 60 , has served as a director of FBFS since July 2002, as Chief Executive Officer since December 2006 and as President from February 2005 until January 2023.
There are no family relationships between any directors or executive officers of FBFS. Corey A. Chambas, age 61 , has served as a director of FBFS since July 2002, as Chief Executive Officer since December 2006 and as President from February 2005 until January 2023.
This program typically provides a guaranty of 75% of principal and interest. In the event of default on the loan, the lender may request that the SBA purchase the guaranteed portion of the loan for an amount equal to outstanding principal plus accrued interest permissible under SBA guidelines.
This program typically provides a guaranty of 75% of loan the balance. In the event of default on the loan, the lender may request that the SBA purchase the guaranteed portion of the loan for an amount equal to outstanding principal plus accrued interest permissible under SBA guidelines.
However, under federal law and FDIC regulations, FDIC-insured state banks are prohibited, subject to certain exceptions, from making or retaining equity investments of a type, or in an amount, that are not permissible for a national bank.
However, under federal law and FDIC regulations, FDIC-insured state banks are prohibited, subject to certain exceptions, from making or retaining equity investments of a type, or in an amount, which are not permissible for a national bank.
Under the CECL model, we will be required to present certain financial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected.
Under the CECL model, we are required to present certain financial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected.
Privacy and Cybersecurity. The Bank is subject to many U.S. federal and state laws and regulations governing requirements for maintaining policies and procedures to protect non-public personal information of their consumers.
The Bank is subject to many U.S. federal and state laws and regulations governing requirements for maintaining policies and procedures to protect non-public personal information of their consumers.
FBB’s business lines include commercial loans, commercial real estate loans, asset-based loans, accounts receivable financing, SBA lending and servicing, floorplan financing, equipment loans and leases, commercial deposit accounts, company retirement solutions, and treasury management services. FBB offers a variety of deposit accounts and personal loans to business owners, executives, professionals, and high net worth individuals.
FBB’s commercial banking products and services include commercial loans, commercial real estate loans, asset-based loans, accounts receivable financing, SBA lending and servicing, floorplan financing, equipment loans and leases, commercial deposit accounts, company retirement solutions, and treasury management services. FBB offers a variety of deposit accounts and personal loans to business owners, executives, professionals, and high net worth individuals.
On January 1, 2021, the National Defense Authorization Act was enacted by Congress.
On January 1, 2021, the National Defense Authorization Act (“NDAA”) was enacted by Congress.
A brief description of each of our primary markets is as follows: 5 Table of Contents South Central Wisconsin As the capital of Wisconsin and home of the University of Wisconsin-Madison, the greater Madison area, specifically Dane County and surrounding counties, offers an appealing economic environment populated by a highly educated workforce.
A brief description of each of our primary markets is as follows: South Central Wisconsin As the capital of Wisconsin and home of the University of Wisconsin-Madison, the greater Madison area, specifically Dane County and surrounding counties, offers an appealing economic environment populated by a highly educated workforce.
The area is known for the diversity of its economic base, with major employers in manufacturing and distribution, architecture and engineering, technology, telecommunications, financial services, and bioscience, as well as local government and higher education. EXECUTIVE OFFICERS OF THE REGISTRANT The following contains certain information about the executive officers of FBFS.
The area is known for the diversity of its economic base, with major employers in manufacturing and distribution, architecture and engineering, technology, telecommunications, financial services, and bioscience, as well as local and federal government. EXECUTIVE OFFICERS OF THE REGISTRANT The following contains certain information about the executive officers of FBFS.
A result of this change is that the proceeds of hybrid instruments, such as trust preferred securities, were excluded from capital over a phase-out period. However, if such securities were issued prior to May 19, 2010 by bank holding companies with less than $15 billion of assets, they may be retained, subject to certain restrictions. The Basel III Rule .
A result of this change is that the proceeds of hybrid instruments, such as trust preferred securities, were excluded from capital over a phase-out period. However, 7 if such securities were issued prior to May 19, 2010 by bank holding companies with less than $15 billion of assets, they may be retained, subject to certain restrictions.
Our products and services are focused on business banking, private wealth, and bank consulting. Within business banking, we offer commercial lending, asset-based lending, accounts receivable financing, equipment financing, floorplan financing, vendor financing, Small Business Administration (“SBA”) lending and servicing, treasury management solutions, and company retirement services.
Our products and services are focused on business banking, private wealth, and bank consulting. Within business banking, we offer commercial real estate lending, commercial and industrial lending, asset-based lending, accounts receivable financing, equipment financing, floorplan financing, vendor financing, Small Business Administration (“SBA”) lending and servicing, treasury management solutions, and company retirement services.
The Corporation and the Bank opted out of the CBLR framework for each reporting period in 2022 and has the option to opt into the framework for future reporting periods. The decision to opt into or out of the CBLR framework is monitored on an ongoing basis. First Business Financial Services, Inc. General.
The Corporation and the Bank opted out of the CBLR framework for each reporting period in 2023 and has the option to opt into the framework for future reporting periods. The decision to opt into or out of the CBLR framework is monitored on an ongoing basis. 9 First Business Financial Services, Inc. General.
The rule also establishes a transparent application process for entities that seek a “primary purpose” exception but do not meet one of the “designated exceptions.” The new rule also reflects technological changes across the banking industry and removes regulatory disincentives that limit banks’ ability to serve their customers. Community Reinvestment Act (“CRA”) Requirements.
The rule also establishes a transparent application process for entities that seek a “primary purpose” exception but do not meet one of the “designated exceptions.” The new rule also reflects technological changes across the banking industry and removes regulatory disincentives that limit banks’ ability to serve their customers.
Except for loans originated under the SBA’s 504 program, the SBA generally provides a guaranty to the lender ranging from 50% to 90% of principal and interest as an inducement to the lender to originate the loan. The majority of our SBA loans are originated using the 7(a) term loan program.
Except for loans originated under the SBA’s 504 program, the SBA generally provides a guaranty to the lender ranging from 50% to 90% of loan the balance as an inducement to the lender to originate the loan. The majority of our SBA loans are originated using the 7(a) term loan program.
In addition, institutions that seek the freedom to make capital distributions (including for dividends and repurchases of stock) and pay discretionary bonuses to executive officers without restriction must also maintain 2.5% in Common Equity Tier 1 Capital attributable to a capital conservation buffer (fully phased-in as of January 1, 2019).
In addition, institutions that seek the freedom to make capital distributions (including for dividends and repurchases of stock) and pay discretionary bonuses to executive officers without restriction must also maintain 2.5% in Common Equity Tier 1 Capital attributable to a capital conservation buffer.
FBB acts as a discretionary trustee and investment fiduciary, sharing responsibility for monitoring assets to match the client’s specifications. Offering only non-proprietary funds removes conflict of interest while designing cost-effective company retirement plans which provide a competitive return. As of December 31, 2022, FBB had $373.3 million of company retirement plan assets under management and administration.
FBB also acts as a discretionary trustee and investment fiduciary, sharing responsibility for monitoring assets to match the client’s specifications. Offering only non-proprietary funds removes conflict of interest while designing cost-effective company retirement plans which provide a competitive return. As of December 31, 2023, FBB had $395.9 million of company retirement plan assets under management and administration.
Excluding Paycheck Protection Program (“PPP”) loans, our SBA loans fall into three categories: loans originated under the SBA’s 7(a) term loan program; loans originated under the SBA’s 504 program; and SBA Express loans and lines of credit.
Our SBA loans fall into three categories: loans originated under the SBA’s 7(a) term loan program; loans originated under the SBA’s 504 program; and SBA Express loans and lines of credit.
Federal regulators regularly examine BSA/Anti–Money Laundering (“AML”) and sanctions compliance programs to ensure their adequacy and effectiveness, and the frequency and extent of such examinations and the remedial actions resulting therefrom have been increasing.
Federal regulators regularly examine BSA/AML and sanctions compliance programs to ensure their adequacy and effectiveness, and the frequency and extent of such examinations and the remedial actions resulting therefrom have been increasing.
For our clients involved in international trade, the Bank offers international payment services, foreign exchange, and trade letters of credit. The Bank also offers a variety of deposit accounts and balance optimization solutions. Company Retirement Plan Services FBB acts as fiduciary and investment manager for corporate clients, creating and executing asset allocation strategies tailored to each corporation’s unique situation.
For our clients involved in international trade, the Bank offers international payment services, foreign exchange, and trade letters of credit. Company Retirement Plan Services FBB acts as fiduciary and investment manager for corporate clients, creating and executing asset allocation strategies tailored to each corporation’s unique situation.
As of December 31, 2022, our private wealth loans represented approximately 2% of our total gross loans and leases receivable. Bank Consulting Services FBB provides outsourced treasury services to assist banks and other financial institutions with balance sheet management. These services include investment portfolio management and administrative services, asset liability management services, and asset liability process validations required by regulators.
As of December 31, 2023, private wealth loans represented approximately 2% of total gross loans and leases receivable. Bank Consulting Services FBB provides outsourced treasury services to assist banks and other financial institutions with balance sheet management. These services include investment portfolio management and administrative services, and asset liability management services.
Hartlieb joined FBB in 2009 as Senior Vice President of Greater Dane County. Mr. Hartlieb has over 25 years of financial services experience. Prior to joining FBB, Mr. Hartlieb held the position of Regional President with AMCORE Bank in Madison, Wisconsin, which he held from 1998 to 2009.
Hartlieb joined FBB in 2009 as Senior Vice President of Greater Dane County. He also currently serves as a director of our FBSF subsidiary. Mr. Hartlieb has over 25 years of financial services experience. Prior to joining FBB, Mr. Hartlieb held the position of Regional President with AMCORE Bank in Madison, Wisconsin, which he held from 1998 to 2009.
FBB also offers private wealth management services and bank consulting services. FBB has four full-service banking locations in Madison, Brookfield, and Appleton, Wisconsin, and Leawood, Kansas. As of December 31, 2022, FBB had six wholly-owned subsidiaries and total gross loans and leases receivable of $2.443 billion, total deposits of $2.171 billion, and total stockholders’ equity of $294.1 million.
FBB also offers private wealth management services and bank consulting services. FBB has four full-service banking locations in Madison, Brookfield, and Appleton, Wisconsin, and Leawood, Kansas. As of December 31, 2023, FBB had six wholly-owned subsidiaries and total gross loans and leases receivable of $2.850 billion, total deposits of $2.799 billion, and total stockholders’ equity of $339.9 million.
He also currently serves as a director for our subsidiary FBSF. Mr. Seiler has over 25 years of financial services experience including his previous position as Managing Director (formerly Senior Vice President/Manager) of the Correspondent Banking Division with BMO Harris Bank in Milwaukee, Wisconsin which he held from 2007 to 2016.
Seiler has over 25 years of financial services experience including his previous position as Managing Director (formerly Senior Vice President/Manager) of the Correspondent Banking Division with BMO Bank, N.A. in Milwaukee, Wisconsin which he held from 2007 to 2016.
Southeast Wisconsin Southeast Wisconsin provides a diverse economic base with a highly skilled labor force and strong manufacturing industry. The most prominent economic sectors include manufacturing, financial services, health care, diversified service companies, and education.
Southeast Wisconsin The Milwaukee metropolitan area has a diverse economic base with a highly skilled labor force and strong manufacturing sector. The most prominent economic sectors include manufacturing, financial services, health care, diversified service companies, and education.
The deposit accounts of the Bank are insured by the FDIC’s Deposit Insurance Fund (“DIF”) to the maximum extent provided under federal law and FDIC regulations, currently $250,000 per insured depositor category.
The deposit accounts of the Bank are insured by the FDIC’s Deposit Insurance Fund (“DIF”) to the maximum extent provided under federal law and FDIC regulations.
In particular, well-capitalized and well-rated institutions are not required to treat reciprocal deposits as brokered deposits up to the lesser of 20% of their total liabilities or $5 billion. Institutions that are not both well-capitalized and well-rated may also exclude reciprocal deposits from their brokered deposits under certain circumstances.
In particular, well-capitalized and well-rated institutions are not required to treat reciprocal deposits as brokered deposits up to the lesser of 20% of their total liabilities or $5 billion.
The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. 15 On December 21, 2018, the federal banking agencies issued a joint final rule revising their regulatory capital rules to (i) address the impending implementation of the CECL accounting standard under GAAP; (ii) provide an optional three-year phase-in period for the day-one adverse regulatory capital effects that banking organizations were expected to experience upon enacting CECL; and (iii) require the use of CECL in stress tests beginning with the 2020 capital planning and stress testing cycle for certain banking organizations.
On December 21, 2018, the federal banking agencies issued a joint final rule revising their regulatory capital rules to (i) address the impending implementation of the CECL accounting standard under GAAP; (ii) provide an optional three-year phase-in period for the day-one adverse regulatory capital effects that banking organizations were expected to experience upon enacting CECL; and (iii) require the use of CECL in stress tests beginning with the 2020 capital planning and stress testing cycle for certain banking organizations.
Bank, working in their financial institutions group with mergers and acquisition financing. Daniel S. Ovokaitys, age 49 , has served as Chief Information Officer since June 2014. Prior to joining FBFS, Mr. Ovokaitys held the position of Head of Corporate IT (North/South America) for Merz Pharmaceuticals, located in Frankfurt, Germany, from 2010 to 2014.
Daniel S. Ovokaitys, age 50 , has served as Chief Information Officer since June 2014. Prior to joining FBFS, Mr. Ovokaitys held the position of Head of Corporate IT (North/South America) for Merz Pharmaceuticals, located in Frankfurt, Germany, from 2010 to 2014.
This Form 10-K and all of our other filings under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are available free of charge through that website, including copies of our proxy statement, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable after we file those materials with, or furnish them to, the Securities and Exchange Commission (“SEC”).
This Form 10-K and all of our other filings under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are available free of charge through that website, including copies of our proxy statement, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable after we file those materials with, or furnish them to, the Securities and Exchange Commission (“SEC”). 4 Table of Contents Markets Although certain of our commercial banking products and services are marketed throughout the Midwest and beyond, our primary markets lie in Wisconsin, Kansas, and Missouri.
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.
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. We conduct our commercial banking operations through one operating segment.
SBA Lending and Servicing SBA loans are made through programs designed by the federal government to assist the small business community in obtaining financing. We are an approved participant in the SBA’s Preferred Lender Program (“PLP”). The PLP is part of the SBA's effort to streamline the procedures necessary to provide financial assistance to the small business community.
C&I Lending - SBA Lending and Servicing SBA loans are made through programs designed by the federal government to assist the small business community in obtaining financing. We are an approved participant in the SBA’s Preferred Lender Program (“PLP”).
Under this program, the SBA delegates the final credit decision, most servicing, liquidation authority and responsibility to PLP lenders. We leverage this program authority and capacity to package, underwrite, process, service, and liquidate, if necessary, SBA loans nationwide.
The PLP is part of the SBA's effort to streamline the procedures necessary to provide financial assistance to the small business community. Under this program, the SBA delegates the final credit decision, most servicing, liquidation authority and responsibility to PLP lenders. We leverage this program authority and capacity to package, underwrite, process, service, and liquidate, if necessary, SBA loans nationwide.
Prior to joining FBFS in 1993, he was a Vice President of Commercial Lending with M&I Bank, now known as BMO Harris Bank, N.A. (“BMO Harris Bank”), in Madison, Wisconsin. Edward G. Sloane, Jr., age 62, has served as Chief Financial Officer of FBFS since January 2016. Mr. Sloane also serves as the Chief Financial Officer of the Bank. Mr.
Prior to joining FBFS in 1993, he was a Vice President of Commercial Lending with M&I Bank, now known as BMO Bank, N.A. , in Madison, Wisconsin. Brian D. Spielmann, age 41, has served as Chief Financial Officer of FBFS since April 2023. Mr. Spielmann also serves as the Chief Financial Officer of the Bank.
On November 18, 2021, the FDIC, the Federal Reserve System, and the OCC (collectively, the agencies) issued a joint final rule, to establish computer-security incident notification requirements for banking organizations and their bank service providers. The rule will provide the agencies with early awareness of emerging threats to banking organizations and the broader financial system, including potentially systemic cyber events.
On November 18, 2021, the FDIC, the Federal Reserve System, and the OCC (collectively, the agencies) issued a joint final rule, to establish computer-security incident notification requirements for banking organizations and their bank service providers.
The strength of our culture and core values is demonstrated in a number of ways: • In 2023, the Corporation was named to the national list of Top Workplaces USA for the second year in a row and to the regional list of Wisconsin State Journal Top Workplaces for the South Central Wisconsin area and Milwaukee 3 Table of Contents Journal Sentinel for the Milwaukee/Southeast Wisconsin area.
The Corporation was named to the national list of Top Workplaces USA for the second year in a row and to the regional list of Wisconsin State Journal Top Workplaces for the South Central Wisconsin area and Milwaukee Journal Sentinel for the Milwaukee/Southeast Wisconsin area. b.
Prior to that, he held the position of Senior Vice President/Team Leader, Correspondent Real Estate Division from 2005 to 2007 and Vice President, Relationship Manager, Commercial Real Estate from 2002 to 2005. Bradley A. Quade, age 57 , has served as Chief Credit Officer of FBFS since April 2020. Mr.
Prior to that, he held the position of Senior Vice President/Team Leader, Correspondent Real Estate Division from 2005 to 2007 and Vice President, Relationship Manager, Commercial Real Estate from 2002 to 2005. Mark J. Meloy, age 62, has served as Executive Vice President of FBFS since January 2023. Mr.
FBB also provides brokerage and custody-only services, for which we administer and safeguard assets, but do not provide investment advice. As of December 31, 2022, FBB had $2.287 billion of private wealth assets under management and administration. The Bank also offers private banking to its Private Wealth Management clients.
FBB also provides access to brokerage and custody-only services, for which it administers and safeguards assets. As of December 31, 2023, FBB had $2.726 billion of private wealth assets under management and administration. The Bank also offers private banking to its Private Wealth Management clients.
With business development officers located in several states, our asset-based lending team serves clients nationwide. We primarily provide revolving lines of credit and term loans for financial and strategic acquisitions, capital expenditures, working capital to support rapid growth, bank debt refinancing, debt restructuring, and corporate turnaround strategies.
We primarily provide revolving lines of credit and term loans for financial and strategic acquisitions, capital expenditures, working capital to support rapid growth, bank debt refinancing, debt restructuring, and corporate turnaround strategies.
The reserve ratio is the FDIC insurance fund balance divided by estimated insured deposits. The reserve ratio of the DIF, increasing the minimum from 1.15% to 1.35% of the estimated amount of total insured deposits, and eliminating the requirement that the FDIC pay dividends to FDIC-insured institutions when the reserve ratio exceeds certain thresholds.
The Dodd-Frank Act set the minimum DIF reserve ratio at 1.35% of the estimated amount of total insured deposits, and eliminating the requirement that the FDIC pay dividends to FDIC-insured institutions when the reserve ratio exceeds 11 certain thresholds.
As of December 31, 2022, the on-balance sheet portion of SBA loans represented approximately 2% of our total gross loans and leases receivable. 2 Table of Contents Treasury Management Services FBB provides comprehensive treasury management services for commercial banking and specialized lending clients to manage their cash and liquidity, including lockbox, accounts receivable collection services, electronic payment solutions, fraud detection and protection, information reporting, reconciliation, and data integration solutions.
Treasury Management Services FBB provides comprehensive treasury management services for commercial banking and specialized lending clients to manage their cash and liquidity, including a variety of deposit accounts, accounts receivable collection services, electronic 2 Table of Contents payment solutions, fraud detection and protection, information reporting, reconciliation, data integration solutions, and account balance optimization solutions.
As of March 30, 2022, the junior subordinated notes and preferred securities were redeemed and Trust II was dissolved. Corporate Information Our principal executive offices are located at 401 Charmany Drive, Madison, Wisconsin 53719 and our telephone number is (608) 238-8008. The contents of our website are not incorporated by reference into this Form 10-K.
Corporate Information Our principal executive offices are located at 401 Charmany Drive, Madison, Wisconsin 53719 and our telephone number is (608) 238-8008. The contents of our website are not incorporated by reference into this Form 10-K. We maintain an Internet website at www.firstbusiness.bank.
Banking organizations became subject to the Basel III Rule on January 1, 2015, and its requirements were fully phased-in as of January 1, 2019. 8 The Basel III Rule increased the required quantity and quality of capital and, for nearly every class of assets, it requires a more complex, detailed and calibrated assessment of risk and calculation of risk-weight amounts.
The Basel III Rule increased the required quantity and quality of capital and, for nearly every class of assets, it requires a more complex, detailed and calibrated assessment of risk and calculation of risk-weight amounts.
Conley was a Senior Vice President in Corporate Banking with Associated Bank, National Association. She had been employed at Associated Bank since May 1976. Jodi A. Chandler, age 58 , has served as Chief Human Resources Officer of FBFS since January 2010. Prior to that, she held the position of Senior Vice President-Human Resources for several years.
Prior to joining FBFS, Mr. Quade held the position of Senior Vice President with Johnson Bank in Milwaukee, Wisconsin. Jodi A. Chandler, age 59 , has served as Chief Human Resources Officer of FBFS since January 2010. Prior to that, she held the position of Senior Vice President-Human Resources for several years.
Floorplan Financing FBB, through its wholly-owned subsidiary FBSF, offers floorplan financing for independent car dealerships nationwide. These floorplan programs generally range from $500,000 to $10 million for larger, well-established independent car dealers. As of December 31, 2022, floorplan financing represented approximately 2% of our total gross loans and leases receivable.
These floorplan programs generally range from $500,000 to $10 million for larger, well-established independent car dealers. Floorplan financing typically generates higher yields than traditional commercial lending. As of December 31, 2023, floorplan financing represented approximately 3% of our total gross loans and leases receivable.
We serve the greater Kansas City Metro through our Leawood, Kansas office, which is located in the Kansas City metropolitan area. Each of our primary markets provides a unique set of economic and demographic characteristics which provide us with a variety of strategic opportunities.
Each of our primary markets provides a unique set of economic and demographic characteristics which provide us with a variety of strategic opportunities.
As of December 31, 2022, asset-based lending represented approximately 8% of our total gross loans and leases receivable. 1 Table of Contents Accounts Receivable Financing FBB, through its wholly-owned subsidiary FBSF, provides funding to clients by purchasing accounts receivable primarily on a full recourse basis.
As of December 31, 2023, asset-based lending represented approximately 8% of our total gross loans and leases receivable. 1 Table of Contents C&I Lending - Accounts Receivable Financing Our Accounts Receivable Financing team, with business development officers located in several states, serves clients nationwide by purchasing accounts receivable primarily on a full recourse basis.
General Federal Deposit Insurance Corporation (“FDIC”)-insured institutions, like the Bank, their holding companies, and their affiliates are extensively regulated under federal and state law.
This narrative does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations. General Federal Deposit Insurance Corporation (“FDIC”)-insured institutions, like the Bank, their holding companies, and their affiliates are extensively regulated under federal and state law.
On December 15, 2020, the FDIC issued a final rule on brokered deposits. The rule aims to clarify and modernize the FDIC’s existing regulatory framework for brokered deposits.
Institutions that are not both well-capitalized and well-rated may also exclude reciprocal deposits from their brokered deposits under certain circumstances. 13 On December 15, 2020, the FDIC issued a final rule on brokered deposits. The rule aims to clarify and modernize the FDIC’s existing regulatory framework for brokered deposits.
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.
Our private wealth management services include trust and estate administration, financial planning, investment management, and private banking. Our bank consulting experts provide investment portfolio administrative services, and asset liability management services. We do not utilize a branch network to attract retail clients.
We conduct our commercial banking operations through one operating segment. As of December 31, 2022, on a consolidated basis, we had total assets of $2.977 billion, total gross loans and leases of $2.443 billion, total deposits of $2.168 billion, and total stockholders’ equity of $260.6 million.
As of December 31, 2023, on a consolidated basis, we had total assets of $3.508 billion, total gross loans and leases of $2.850 billion, total deposits of $2.797 billion, and total stockholders’ equity of $289.6 million.
He also currently serves as a director of our FBSF subsidiary. Mr. Meloy has over 35 years of commercial lending experience. Prior to joining FBFS, Mr. Meloy was a Vice President and Senior Relationship Manager with Firstar Bank, NA, in Cedar Rapids, Iowa and Milwaukee, Wisconsin, now known as U.S.
Meloy joined FBFS in 2000 and has held various positions including Chief Executive Officer of FBB, Executive Vice President of FBB, and President and Chief Executive Officer of FBB-Milwaukee. He also currently serves as a director of our FBSF subsidiary. Mr. Meloy has over 35 years of commercial lending experience. Prior to joining FBFS, Mr.
While the majority of employees are located in the primary banking markets, the Corporation has employees in over 27 states. This geographic expansion allows the Corporation to continue to diversify the workforce and add producers and specialists as the business lines grow. The Corporation’s culture is critical and is rooted in our founding beliefs and guided by our cultural competencies.
This geographic expansion allows the Corporation to continue to diversify the workforce, compete in an increasingly challenging talent landscape, and add producers and specialists as business lines and needs grow. The Corporation’s culture is critical to success and is rooted in a set of founding beliefs and guided by a core cultural competency framework.
Our ability to pay dividends to our shareholders may be affected by both general corporate law considerations and policies of the Federal Reserve applicable to bank holding companies.
In particular, the final rule is intended to provide a better understanding of the facts and circumstances that the Federal Reserve considers most relevant when assessing whether control exists. Dividend Payments. Our ability to pay dividends to our shareholders may be affected by both general corporate law considerations and policies of the Federal Reserve applicable to bank holding companies.
Progressively lower assessment rate schedules will take effect when the reserve ratio reaches 2.00%, and again when it reaches 2.50%. Supervisory Assessments. All Wisconsin banks are required to pay supervisory assessments to the WDFI to fund the operations of that agency. The amount of the assessment is calculated on the basis of the Bank’s total assets. Liquidity Requirements.
The termination of deposit insurance for the Bank would have a material adverse effect on our earnings, operations and financial condition. Supervisory Assessments. All Wisconsin banks are required to pay supervisory assessments to the WDFI to fund the operations of that agency. The amount of the assessment is calculated on the basis of the Bank’s total assets. Liquidity Requirements.
Through FBB, we service South Central Wisconsin, Southeast Wisconsin, Northeast Wisconsin, and the greater Kansas City Metro. Our commercial loans are typically secured by various types of business assets, including inventory, receivables, and equipment. We also originate loans secured by commercial real estate, including owner-occupied and non owner-occupied facilities.
Through FBB, we service South Central Wisconsin, Southeast Wisconsin, Northeast Wisconsin, the greater Kansas City Metro, and other borrowers through products with national channels. Commercial Real Estate Lending We originate loans secured by commercial real estate, including owner-occupied, non owner-occupied facilities, primarily market-rent multifamily developments, 1-4 family residential developments, and construction loans for these types of buildings.
With business development officers located in several states, our accounts receivable financing team serves clients nationwide. Our accounts receivable financing team provides working capital to support growth and other cash flow needs. Accounts receivable financing typically generates higher yields than traditional commercial lending and complements our traditional commercial portfolio.
This offering provides working capital to support client growth and other client cash flow needs. Accounts receivable financing typically generates higher yields than traditional commercial lending and complements our traditional commercial portfolio. As of December 31, 2023, accounts receivable financing represented approximately 3% of our total gross loans and leases receivable.
As of December 31, 2022, accounts receivable financing represented approximately 3% of our total gross loans and leases receivable. Equipment Financing FBB, through its wholly-owned subsidiary FBSF, finances a broad range of equipment, through loans and leases, to address the financing needs of commercial clients in a variety of industries.
C&I Lending - Equipment Financing The Bank finances a broad range of equipment, through loans and leases, to address the financing needs of commercial clients in a variety of industries.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Such changes could subject us to additional costs, tax filing requirements, employment practices, and limit the types of financial services and products we may offer, among other things. Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations often impose additional compliance costs.
Such changes could subject us to additional costs, tax filing requirements, employment practices, and limit the types of financial services and products we may offer, among other things. Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations often impose additional costs.
These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative actions to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to change the asset composition of our portfolio or balance sheet, to assess civil monetary penalties against our officers or directors, to remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an 27 Table of Contents imminent risk of loss to depositors, to terminate our deposit insurance.
These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative actions to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to change the asset composition of our portfolio or balance sheet, to assess civil monetary penalties against our officers 27 Table of Contents or directors, to remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate our deposit insurance.
If we determine that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance will need to be recognized and this would result in a corresponding charge against our earnings. Competition from other financial services providers could adversely affect our profitability.
If we determine that it is more likely than not that some portion or all of the remaining deferred tax assets will not be realized, a valuation allowance will need to be recognized and this would result in a corresponding charge against our earnings. Competition from other financial services providers could adversely affect our profitability.
In addition, some larger financial institutions that have not historically competed with us directly have substantial excess liquidity and have sought, and may continue to seek, smaller lending relationships in our primary markets. Furthermore, tax-exempt credit unions operate in our market areas and aggressively price their products and services to a large portion of the market.
Some larger financial institutions that have not historically competed with us directly have substantial excess liquidity and have sought, and may continue to seek, smaller lending relationships in our primary markets. Furthermore, tax-exempt credit unions operate in our market areas and aggressively price their products and services to a large portion of the market.
In addition, we may be required to sell existing loans in our portfolio, but there can be no assurances that we would be able to do so at prices that are acceptable to us. Real estate construction and land development loans are based upon estimates of costs and values associated with the completed project.
We may be required to sell existing loans in our portfolio, but there can be no assurances that we would be able to do so at prices that are acceptable to us. Real estate construction and land development loans are based upon estimates of costs and values associated with the completed project.
However, as with any risk management framework, there are inherent limitations to our risk management strategies as there may exist, or develop in the future, risks that we have not appropriately anticipated or identified. Our ability to successfully identify and manage risks facing us is an important factor that can significantly impact our results.
As with any risk management framework, there are inherent limitations to our risk management strategies as there may exist, or develop in the future, risks that we have not appropriately anticipated or identified. Our ability to successfully identify and manage risks facing us is an important factor that can significantly impact our results.
Similarly, when interest rates fall, the rate of interest we pay on our liabilities may not decrease as quickly as the rate of interest we receive on our interest-bearing assets, which could cause our profits to decrease. However, the structure of our balance sheet and resultant sensitivity to interest rates in various scenarios may change in the future.
Similarly, when interest rates fall, the rate of interest we pay on our liabilities may not decrease as quickly as the rate of interest we receive on our interest-bearing assets, which could cause our profits to decrease. The structure of our balance sheet and resultant sensitivity to interest rates in various scenarios may change in the future.
We also compete with regional and national financial institutions that have a substantial presence in our market areas, many of which have greater liquidity, higher lending limits, greater access to capital, more established market recognition, and more resources and collective experience than we do.
We compete with regional and national financial institutions that have a substantial presence in our market areas, many of which have greater liquidity, higher lending limits, greater access to capital, more established market recognition, and more resources and collective experience than we do.
Future dividend payments by the Bank to us will require the generation of future earnings by the Bank and are subject to certain regulatory guidelines. If the Bank is unable to pay dividends to us, we may not have the resources or cash flow to pay or meet all of our obligations.
Future dividend payments by the Bank will require the generation of future earnings by the Bank and are subject to certain regulatory guidelines. If the Bank is unable to pay dividends, we may not have the resources or cash flow to pay or meet all of our obligations.
Our management contracts generally provide for fees payable for services based on the market value of trust assets under management; therefore, declines in securities prices will generally have an adverse effect on our results of operations from this business.
Our management contracts generally provide for fees payable for services based on the market value of assets under management; therefore, declines in securities prices will generally have an adverse effect on our results of operations from this business.
Any downgrade in the sovereign credit rating of the United States, as well as sovereign debt issues facing the governments of other countries, could have a material adverse impact on financial markets and economic conditions in the United States and worldwide.
Any further downgrade in the sovereign credit rating of the United States, as well as sovereign debt issues facing the governments of other countries, could have a material adverse impact on financial markets and economic conditions in the United States and worldwide.
Additionally, many of these loans have real estate as a primary or secondary component of collateral. The market value of real estate can fluctuate significantly in a short period of time as a result of economic conditions.
Many of these loans have real estate as a primary or secondary component of collateral. The market value of real estate can fluctuate significantly in a short period of time as a result of economic conditions.
The risks are organized in the following categories: • Credit Risk • Liquidity and Interest Rate Risk • Operational Risk • Strategic and External Risk • Regulatory, Compliance, Legal, and Reputational Risk • Risks Related to Investing in Our Common Stock • General Risk Factors Credit Risks If we do not effectively manage our credit risk, we may experience increased levels of delinquencies, non-performing loans, and charge-offs, which would require increases in our provision for loan and lease losses.
The risks are organized in the following categories: • Credit Risk • Liquidity and Interest Rate Risk • Operational Risk • Strategic and External Risk • Regulatory, Compliance, Legal, and Reputational Risk • Risks Related to Investing in Our Common Stock • General Risk Factors Credit Risks If we do not effectively manage our credit risk, we may experience increased levels of delinquencies, non-performing loans, and charge-offs, which would require increases in our provision for credit losses.
As of December 31, 2022, the Corporation had goodwill of $10.7 million. Goodwill is not amortized but, instead, is subject to impairment tests on at least an annual basis, and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
As of December 31, 2023, the Corporation had goodwill of $10.7 million. Goodwill is not amortized but, instead, is subject to impairment tests on at least an annual basis, and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
While we have a business continuity plan and other policies and procedures designed to prevent or limit the effect of a failure, interruption or security breach of our information systems, there can be no assurance that any of those events will not occur or, if they do occur, that they will be adequately remediated.
While we have a business continuity plan and other policies and procedures designed to prevent or limit the impact of a failure, interruption or security breach of our information systems, there can be no assurance that any of those events will not occur or, if they do occur, that they will be adequately remediated.
Our preferred source of funds consists of client deposits, which we supplement with other sources, such as wholesale deposits made up of brokered deposits and deposits gathered through internet listing services. Such account and deposit balances can decrease when clients perceive alternative investments as providing a better risk/return profile.
Our preferred source of funding consists of client deposits, which we supplement with other sources, such as wholesale deposits made up of brokered deposits and deposits gathered through internet listing services. Such account and deposit balances can decrease when clients perceive alternative investments as providing a better risk/return profile.
Of particular impact to the Corporation are the operations regulated by the SBA or the FDIC. Any failure to maintain such U.S. government operations, and the after-effects of such shutdown, could impede our ability to originate SBA loans and sell such loans in the secondary market, and would materially adversely affect our business, results of operations, and financial condition.
Of particular impact to the Corporation are the operations regulated by the SBA. Any failure to maintain such U.S. government operations, and the after-effects of such shutdown, could impede our ability to originate SBA loans and sell such loans in the secondary market, and would materially adversely affect our business, results of operations, and financial condition.
The extent to which the COVID-19 pandemic, or any future pandemic, impacts the Corporation’s business, results of operations, and financial condition, as well as the Corporation’s regulatory capital, liquidity ratios, and stock price, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and any responsive actions taken by governmental authorities and other third parties. 23 Table of Contents Our business may be adversely affected by conditions in the financial markets and economic conditions generally.
The extent to which any future pandemic impacts the Corporation’s business, results of operations, and financial condition, as well as the Corporation’s regulatory capital, liquidity ratios, and stock price, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and any responsive actions taken by governmental authorities and other third parties. 23 Table of Contents Our business may be adversely affected by conditions in the financial markets and economic conditions generally.
Acquiring other banks and businesses will involve similar risks to those commonly associated with branching, but may also involve additional risks, including potential exposure to unknown or contingent liabilities of banks and businesses we acquire and exposure to potential asset quality issues of the acquired bank or related business.
Acquiring other banks and businesses would involve similar risks to those commonly associated with branching, but may also involve additional risks, including potential exposure to unknown or contingent liabilities of banks and businesses we acquire and exposure to potential asset quality issues of the acquired bank or related business.
Because payments on such loans are often dependent on the successful operation or development of the property or business involved, repayment of such loans is sensitive to conditions in the real estate market or the general economy, which are outside the borrower’s control.
Payments on such loans are often dependent on the successful operation or development of the property or business involved; therefore, repayment of such loans is sensitive to conditions in the real estate market or the general economy, which are outside the borrower’s control.
Thus, an increase in the amount of non-performing assets would have an adverse impact on net interest income. Rising interest rates may also result in a decline in value of our fixed-rate debt securities. The unrealized losses resulting from holding these securities would be recognized in other comprehensive income and reduce total stockholders’ equity.
Thus, an increase in the amount of non-performing assets would have an adverse impact on net interest income. 20 Table of Contents Rising interest rates may also result in a decline in value of our fixed-rate debt securities. The unrealized losses resulting from holding these securities would be recognized in other comprehensive income and reduce total stockholders’ equity.
Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on our business, results of operations, and financial condition. 22 Table of Contents Our framework for managing risks may not be effective in mitigating risk and loss to us.
Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on our business, results of operations, and financial condition. Our framework for managing risks may not be effective in mitigating risk and loss to us.
Additions to the allowance for loan and lease losses, which are charged to earnings through the provision for loan and lease losses, are determined based on a variety of factors, including an analysis of our loan and lease portfolio by segment, historical loss experience, subjective factors, and an evaluation of current economic conditions in our markets.
Additions to the ACL, which are charged to earnings through the provision for credit losses, are determined based on a variety of factors, including an analysis of our loan and lease portfolio by segment, historical loss experience, subjective factors, and an evaluation of current economic conditions in our markets.
The deterioration of one or a few of these loans could cause a material increase in our level of non-performing loans, which would result in a loss of revenue from these loans and could result in an increase in the provision for loan and lease losses and an increase in charge-offs, all of which could have a material adverse impact on our net income.
The deterioration of one or a few of these loans could cause a material increase in our level of non-performing loans, which would result in a loss of revenue from these loans and could result in an increase in the provision for credit losses and an increase in charge-offs, all of which could have a material adverse impact on our net income.
If our risk management framework proves ineffective, we could suffer unexpected losses which could adversely affect our business, results of operations, and financial condition. We are subject to changes in accounting principles, policies, or guidelines. Our financial performance is impacted by accounting principles, policies, and guidelines.
If our risk management framework proves ineffective, we could suffer unexpected losses which could adversely affect our business, results of operations, and financial condition. 22 Table of Contents We are subject to changes in accounting principles, policies, or guidelines. Our financial performance is impacted by accounting principles, policies, and guidelines.
Delinquency may negatively affect non-performing assets and increase the provision for loan and lease losses. Any new line of business and/or new product or service could also have a significant impact on the effectiveness of our system of internal controls.
Delinquency may negatively affect non-performing assets and increase the provision for credit losses. Any new line of business and/or new product or service could also have a significant impact on the effectiveness of our system of internal controls.
Although we employ detection and response mechanisms designed to detect and mitigate security incidents, early detection may be thwarted by persistent sophisticated attacks and malware designed to avoid detection. We also train employees and our business and consumer clients on fraud risks.
Although we employ detection and response mechanisms designed to detect and mitigate security incidents, early detection may be thwarted by persistent sophisticated attacks and malware designed to avoid detection. We train employees and our business and consumer clients on fraud risks and mitigation strategies.
Although we do not have any current definitive plans to do so, in implementing our strategic plan we may expand into additional communities or attempt to strengthen our position in our current markets through opportunistic acquisitions of similar or complementary financial services organizations.
Although we do not have any current definitive plans to do so, we may expand into additional communities or attempt to strengthen our position in our current markets through opportunistic acquisitions of similar or complementary financial services organizations.
Any significant increases to the allowance for loan and lease losses may materially decrease our net income, which may adversely affect our business, results of operations, and financial condition. 17 Table of Contents A significant portion of our loan and lease portfolio is comprised of commercial real estate loans, which involve risks specific to real estate values and the real estate markets in general.
Any significant increases to the ACL may materially decrease our net income, which may adversely affect our business, results of operations, and financial condition. 17 Table of Contents A significant portion of our loan and lease portfolio is comprised of commercial real estate loans, which involve risks specific to real estate values and the real estate markets in general.
A decline in our stock price, decline in the performance of our acquired operations, or the occurrence of another triggering event could, under certain circumstances, result in an impairment charge being recorded. During 2021, our annual impairment test conducted August 1, 2021 indicated that the estimated fair value of the reporting unit exceeded the carrying value (including goodwill).
A decline in our stock price, decline in the performance of our acquired operations, or the occurrence of another triggering event could, under certain circumstances, result in an impairment charge being recorded. During 2023, our annual impairment test conducted July 1, 2023 indicated that the estimated fair value of the reporting unit exceeded the carrying value (including goodwill).
This would, in turn, require increases in the provision for loan and lease losses, which may adversely affect our business, results of operations, and financial condition. Our allowance for loan and lease losses may not be adequate to cover actual losses.
This would, in turn, require increases in the provision for credit losses, which may adversely affect our business, results of operations, and financial condition. Our allowance for credit losses may not be adequate to cover actual losses.
Depending 24 Table of Contents on market conditions, economic forecasts, results of operations, additional adverse circumstances or other factors, the goodwill impairment analysis may require additional review of assumptions and outcomes prior to our next annual impairment testing date of August 1, 2022.
Depending on market conditions, economic forecasts, results of operations, additional adverse circumstances or other factors, the goodwill 24 Table of Contents impairment analysis may require additional review of assumptions and outcomes prior to our next annual impairment testing date of July 1, 2024.
Some of these parties have in the past been the target of security breaches and cyber-attacks, and because the transactions involve third parties and environments that we do not control or secure, future security breaches or cyber-attacks affecting any of these third parties could impact us through no fault of our own, and in some cases we may have exposure and suffer losses for breaches or attacks relating to them.
Because the transactions involve third parties and environments that we do not control or secure, future security breaches or cyber-attacks affecting any of these third parties could impact us through no fault of our own, and in some cases, we may suffer losses for breaches or attacks relating to them.
We also rely on numerous other third-party 21 Table of Contents service providers to conduct other aspects of our business operations and face similar risks relating to them. While we conduct security assessments on our higher risk third party service providers, we cannot be sure that their information security protocols are sufficient to withstand a cyber-attack or other security breach.
We also rely on numerous other third-party service providers to conduct other aspects of our business operations and face similar risks relating to them. While we conduct security assessments on our high risk third party service providers, we cannot be sure that their information security protocols are sufficient to withstand a cyber-attack or other security breach.
We establish our allowance for loan and lease losses and maintain it at a level considered appropriate by management based on an analysis of our portfolio and market environment. The allowance for loan and lease losses represents our estimate of probable losses inherent in the portfolio at each balance sheet date and is based upon relevant information available to us.
We establish our allowance for credit losses (“ACL”) and maintain it at a level considered appropriate by management based on an analysis of our portfolio and market environment. The ACL represents our estimate of probable losses inherent in the portfolio at each balance sheet date and is based upon relevant information available to us.
Although our clients’ business and financial interests may extend well beyond these markets, adverse economic conditions that affect these markets, including, without limitation, adverse conditions resulting from the COVID-19 pandemic, could reduce our growth rate, affect the ability of our clients to repay their loans to us, affect the value of collateral underlying loans, and generally affect our financial condition and results of operations.
Although our clients’ business and financial interests may extend well beyond these markets, adverse economic conditions that affect these markets, including, without limitation, could reduce our growth rate, affect the ability of our clients to repay their loans to us, affect the value of collateral underlying loans, and generally affect our financial condition and results of operations.
Prospective employees are also placing an emphasis on flexible, including remote, work arrangements and other considerations, and such arrangements can provide employees with more employment options and 28 Table of Contents mobility, making them more difficult to retain.
Prospective employees are also placing an emphasis on flexible, including remote, work arrangements and other considerations, and such arrangements can provide employees with more employment options and mobility, making them more difficult to retain.
We could recognize impairment losses on securities held in our securities portfolio, goodwill, or other long-lived assets. As of December 31, 2022, the fair value of our securities portfolio was approximately $224.3 million.
We could recognize impairment losses on securities held in our securities portfolio, goodwill, or other long-lived assets. As of December 31, 2023, the fair value of our securities portfolio was approximately $305.3 million.
The total outstanding balance of sold SBA loans as of December 31, 2022 was $88.5 million. In order for a borrower to be eligible to receive an SBA loan, it must be established that the borrower would not be able to secure a bank loan without the credit enhancements provided by a guaranty under the SBA program.
The total outstanding balance of sold SBA loans as of December 31, 2023 was $84.2 million. In order for a borrower to be eligible to receive an SBA loan, it must be established that the borrower would not be able to secure a bank loan without the credit enhancements provided by a guaranty under the SBA program.
These regulations affect our lending practices, employment practices, privacy policies, operational controls, tax structure, and growth, among other things. Changes to federal and state laws, income and property tax regulations, or regulatory guidance, could affect us in substantial and unpredictable ways.
These regulations affect our lending practices, employment practices, compliance management system, operational controls, tax structure, and growth, among other things. Changes to federal and state laws, income and property tax regulations, or regulatory guidance, could affect us in substantial and unpredictable ways.
An increase in interest rates that adversely affects the ability of borrowers to pay the principal or interest on loans may lead to an increase in nonperforming assets and a reduction of 20 Table of Contents income recognized, which could have an adverse effect on our results of operations and cash flows.
An increase in interest rates that adversely affects the ability of borrowers to pay the principal or interest on loans may lead to an increase in non-performing assets and a reduction of income recognized, which could have an adverse effect on our results of operations and cash flows.
In addition, the pandemic resulted in temporary closures of many businesses and the institution of social distancing and stay-at-home requirements in many states and communities, including Wisconsin, Kansas, and Missouri, The COVID-19 pandemic, including, in part, supply chain disruption and the effects of the extensive pandemic-related government stimulus, has caused inflationary pressure in the U.S. economy.
In addition, the pandemic resulted in temporary closures of many businesses and the institution of social distancing and stay-at-home requirements in many states and communities, including Wisconsin, Kansas, and Missouri. The COVID-19 pandemic, including, in part, supply chain disruption and the effects of the extensive pandemic-related government stimulus, played a significant role in recent inflationary pressure in the U.S. economy.
We do not record interest income on non-accrual loans, thereby adversely affecting our net income and returns on assets and equity, increasing our loan administration costs, and adversely affecting our efficiency ratio.
Our non-performing assets adversely affect our net income in various ways. We do not record interest income on non-accrual loans, thereby adversely affecting our net income and returns on assets and equity, increasing our loan administration costs, and adversely affecting our efficiency ratio.
If we experience increases in non-performing loans and non-performing assets, our net interest income may be negatively impacted and our loan administration costs could increase, each of which may adversely affect our business, results of operations, and financial condition.
If we experience increases in non-performing loans and non-performing assets, our net interest income may be negatively impacted and our loan administration costs could increase, each of which may adversely affect our business, results of operations, and financial condition. 19 Table of Contents Liquidity and Interest Rate Risks Liquidity risks could affect operations and jeopardize our business, financial condition, and results of operations.
Any such adverse impact could have a material adverse effect on our liquidity, financial condition, and results of operations. 26 Table of Contents Regulatory, Compliance, Legal and Reputational Risks We operate in multiple states and in a highly regulated industry and the federal and state laws and regulations that govern our operations, corporate governance, executive compensation, and accounting principles, or changes in them, or our failure to comply with them, may adversely affect us.
Any such adverse impact could have a material adverse effect on our liquidity, financial condition, and results of operations. 26 Table of Contents Regulatory, Compliance, Legal and Reputational Risks We operate in multiple states and in a highly regulated industry and the federal and state laws and regulations that govern our operations, corporate governance, executive compensation, and accounting principles.
Because of the risks associated with commercial real estate loans, we closely monitor the concentration of such loans in our portfolio. If we or our regulators determine that this concentration is approaching or exceeds appropriate limits, we may need to reduce or cease the origination of additional commercial real estate loans, which could adversely affect our growth plans and profitability.
If we or our regulators determine that this concentration is approaching or exceeds appropriate limits, we may need to reduce or cease the origination of additional commercial real estate loans, which could adversely affect our growth plans and profitability.
We cannot assure you that our credit risk approval and monitoring procedures have identified or will identify all of these credit risks, and they cannot be expected to completely eliminate our credit risks.
Our credit risk approval and monitoring procedures may not have identified or will identify all of these credit risks, and they cannot be expected to completely eliminate our credit risks.
We also face risks related to cyber-attacks and other security breaches that typically involve the transmission of sensitive information regarding our clients and monetary transactions through various third parties.
We face risks related to cyber-attacks and other security breaches that typically involve the transmission of sensitive information regarding our clients and monetary transactions through various third parties. Some of these parties have in the past been the target of security breaches and cyber-attacks.
Additional factors include, but are not limited to, rating agency downgrades of the securities, defaults by the issuer or individual mortgagors with respect to the underlying securities, and instability in the credit markets. Any of the foregoing factors could cause other-than-temporary impairment in future periods and result in realized losses.
Additional factors include, but are not limited to, rating agency downgrades of the securities, defaults by the issuer or individual mortgagors with respect to the underlying securities, and instability in the credit markets. Any of the foregoing factors could cause credit losses and result in a provision for credit losses.
The financial services industry, as well as the broader economy, may be subject to new legislation, regulation, and government policy. From time to time, federal and state governments and bank regulatory agencies modify the laws and regulations that govern financial institutions and the financial system generally. Such laws and regulations can affect our operating environment in substantial and unpredictable ways.
The financial services industry, as well as the broader economy, may be subject to new legislation, regulation, and government policy. From time to time, federal and state governments and bank regulatory agencies modify the laws and regulations that govern financial institutions and the financial system generally.
At December 31, 2022, approximately $841.2 million, or 34.4%, of our loan and lease portfolio was comprised of commercial loans to businesses collateralized by general business assets, including accounts receivable, inventory, and equipment. Our commercial loans are typically larger in amount than loans to individual consumers and therefore, have the potential for larger losses on an individual loan basis.
At December 31, 2023, approximately $1.106 billion, or 38.8%, of our loan portfolio was comprised of commercial loans to businesses collateralized by general business assets, including accounts receivable, inventory, and equipment. Our commercial loans are typically larger in amount than loans to individual consumers and therefore, have the potential for larger losses on an individual loan basis.
Negative publicity can adversely affect our ability to keep and attract clients, employees, and shareholders and can expose us to litigation and regulatory action, all of which could have a material adverse effect on our business, financial condition, and results of operations. Our internal controls may be ineffective.
Negative publicity can adversely affect our ability to keep and attract clients, employees, and shareholders and can expose us to litigation and regulatory action, all of which could have a material adverse effect on our business, financial condition, and results of operations. Item 1B. Unresolved Staff Comments None.
These estimates may be inaccurate and we may be exposed to significant losses on loans for these projects. Real estate construction and land development loans, subsets of commercial real estate loans, comprised approximately $167.9 million, or 6.9%, and $50.8 million, or 2.1%, of our gross loan and lease portfolio, respectively, as of December 31, 2022.
These estimates may be inaccurate and we may be exposed to significant losses on loans for these projects. Real estate construction loans, a subset of commercial real estate loans, comprised approximately $193.1 million, or 6.8%, of our gross loan and lease portfolio, respectively, as of December 31, 2023.
The COVID-19 pandemic, widespread recurrences of COVID-19 or similar pandemics, or other future widespread public health epidemics could result in the continued and increased recognition of credit losses in the Corporation’s loan portfolio and increases in the Corporation’s allowance for credit losses, particularly to the extent that there is a significant negative impact on the global economy.
Future widespread public health epidemics could result in the continued and increased recognition of credit losses in the Corporation’s loan portfolio and increases in the Corporation’s ACL, particularly to the extent that there is a significant negative impact on the global economy.
If any analyst electing to cover us ceases coverage of us, we could lose visibility in the market, which in turn could cause our common stock price or trading volume to decline and our common stock to be less liquid. General Risk Factors Our ability to attract and retain talented employees is critical to our success.
If any analyst electing to cover us ceases coverage of us, we could lose visibility in the market, which in turn could cause our common stock price or trading volume to decline and our common stock to be less liquid.
At December 31, 2022 we had $1.542 billion of commercial real estate loans, which represented 63.1% of our total loan and lease portfolio.
At December 31, 2023 we had $1.700 billion of commercial real estate loans, which represented 59.6% of our total loan and lease portfolio.
Our access to funding sources in amounts adequate to finance or capitalize our activities or on terms that are acceptable to us could be impaired by factors that affect us directly or the financial services industry or economy in general, such as disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry.
Our access to funding sources could be impaired by factors that affect us directly or the financial services industry or economy in general, such as disruptions in the financial markets, credit quality, capital adequacy, or negative views and expectations about the prospects for the financial services industry.
Net interest income is the difference between the amounts received by us on our interest-earning assets and the interest paid by us on our interest-bearing liabilities.
Net interest income is the difference between the amounts we receive on our interest-bearing assets and the amounts we pay on our interest-bearing liabilities.
Any successful cyber-attack or other security breach involving the misappropriation, loss or other unauthorized disclosure of confidential customer information or funds or that compromises our ability to function could erode confidence in the security of our systems, products and services, result in monetary losses, potentially subject us to regulatory investigation with fines and penalties, expose us to litigation and liability, disrupt our operations and have a material adverse effect on our business, financial condition or results of operations and damage our reputation.
The additional cost to the Corporation of our cyber security monitoring and protection systems and controls includes the cost of hardware and software, third party technology providers, consulting and forensic testing firms, and insurance premium costs, in addition to the incremental cost of our personnel who focus a substantial portion of their responsibilities on fraud and cyber security. 21 Table of Contents Any successful cyber-attack or other security breach involving the misappropriation, loss or other unauthorized disclosure of confidential client information or funds or that compromises our ability to function could erode confidence in the security of our systems, products and services, result in monetary losses, potentially subject us to regulatory investigation with fines and penalties, expose us to litigation and liability, disrupt our operations and have a material adverse effect on our business, financial condition or results of operations and damage our reputation.
Although management believes the allowance for loan and lease losses is appropriate, we may be required to take additional provisions for losses in the future to further supplement the allowance, either due to management’s decision, based on credit conditions, or requirements by our banking regulators.
Although management believes the ACL is appropriate, we may be required to take additional provisions for losses in the future to further supplement the allowance, either due to management’s assessment of credit conditions, or requirements by our banking regulators. In addition, bank regulatory agencies will periodically review our ACL and the value attributed to non-performing loans and leases.
This determination was based on the evaluation of several factors, including our recent earnings history, expected future earnings, and appropriate tax planning strategies. A decrease in earnings could adversely impact our ability to fully utilize our deferred tax assets.
The Corporation believes it will fully realize its Federal and non-Wisconsin deferred tax assets. These determinations were based on the evaluation of several factors, including relevant tax law changes, our recent earnings history, expected future taxable earnings, and appropriate tax planning strategies. A decrease in taxable earnings could adversely impact our ability to fully utilize our remaining deferred tax assets.
We are subject to extensive regulation and supervision that govern almost all aspects of our operations.
Changes in them or our failure to comply with them, may adversely affect us. We are subject to extensive regulation and supervision that govern almost all aspects of our operations.
Deferred tax assets are reported as assets on our balance sheet and represent the decrease in taxes expected to be paid in the future in connection with our allowance for loan and lease losses and other matters.
We could be required to establish a deferred tax asset valuation allowance and a corresponding charge against earnings if we experience a decrease in earnings. Deferred tax assets are reported as assets on our balance sheet and represent the decrease in taxes expected to be paid in the future in connection with our ACL and other matters.
SBA loans (excluding PPP loans), consisting of both commercial real estate and commercial loans, comprised approximately $48.9 million, or 2.0%, of our gross loan and lease portfolio as of December 31, 2022.
SBA loans, excluding SBA loans made under the Paycheck Protection Program (“PPP Loans”), consisting of both commercial real estate and commercial loans, comprised approximately $53.4 million, or 1.9%, of our gross loan and lease portfolio as of December 31, 2023.
The actual amount of loan and lease losses is affected by changes in economic, operating, and other conditions within our markets, which may be beyond our control, and such losses may exceed current estimates.
The actual amount of credit losses is affected by changes in economic, operating, and other conditions within our markets, which may be beyond our control, and such losses may exceed current estimates. At December 31, 2023, our ACL as a percentage of total loans and leases was 1.16% and as a percentage of total non-performing loans and leases was 160.21%.
Changes in these standards are continuously occurring and more drastic changes may occur in the future. The implementation of such changes could have a material adverse effect on our business, results of operations, and financial condition. Strategic and External Risks The Corporation’s business and financial results could be materially and adversely affected by widespread public health events.
Changes in these standards are continuously occurring and more changes may occur in the future. The implementation of such changes could have a material adverse effect on our business, results of operations, and financial condition. Our internal controls may be ineffective. Management regularly reviews and updates its internal controls, disclosure controls and procedures, and corporate governance policies and procedures.
Management has estimated losses in the outstanding guaranteed portions of SBA loans and recorded an allowance for loan and lease losses and a SBA recourse reserve at a level determined to be appropriate.
Management has estimated losses in the outstanding guaranteed portions of SBA loans and recorded an ACL and a SBA recourse reserve at a level determined to be appropriate. Significant increases to the ACL and the recourse reserve may materially decrease our net income, which may adversely affect our business, results of operations, and financial condition.
Management regularly reviews and updates its internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the controls are met.
Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the controls are met. In addition, as we continue to grow the Corporation, our controls need to be updated to keep up with such growth.
If clients move money out of bank deposits and into other investments, we may increase our utilization of wholesale deposits, FHLB advances, and other wholesale funding sources necessary to fund desired growth levels. Because these funds generally are more sensitive to interest rate changes than our targeted in-market deposits, they are more likely to move to the highest rate available.
If clients move money out of bank deposits and into other investments, we may increase our utilization of wholesale deposits, FHLB advances, and other wholesale funding sources necessary to fund desired growth levels. In addition, the use of brokered deposits without regulatory approval is limited to banks that are “well capitalized” according to regulation.
In addition, bank regulatory agencies will periodically review our allowance for loan and lease losses and the value attributed to non-performing loans and leases. Such regulatory agencies may require us to adjust our determination of the value for these items.
Such regulatory agencies may require us to adjust our determination of the value for these items.
At December 31, 2022, our non-performing loans and leases totaled $3.7 million, or 0.15% of our gross loan and lease portfolio, and our non-performing assets (which include non-performing loans and repossessed assets) totaled $3.8 million, or 0.13% of total assets. Our non-performing assets adversely affect our net income in various ways.
Non-performing assets take time to resolve, adversely affect our results of operations and financial condition, and could result in losses. At December 31, 2023, our non-performing loans totaled $20.6 million, or 0.72% of our gross loan and lease portfolio, and our non-performing assets (which include non-performing loans and repossessed assets) totaled $20.8 million, or 0.59% of total assets.
If it becomes more likely than not that some portion or the entire deferred tax asset will not be realized, a valuation allowance must be recognized. The Corporation believes it will fully realize its deferred tax asset, and therefore, no valuation allowance was necessary as of December 31, 2022.
If it becomes more likely than not that some portion or the entire deferred tax asset will not be realized, a valuation allowance must be recognized. As a result of a Wisconsin state tax law change in 2023, the Corporation has recorded a valuation allowance of $2.8 million against related state deferred tax assets.
The COVID-19 pandemic has negatively impacted the global economy, disrupting global supply chains and equity markets and creating significant volatility and disruption in financial and labor markets.
Strategic and External Risks The Corporation’s business and financial results could be materially and adversely affected by widespread public health events. The COVID-19 pandemic negatively impacted the global economy, disrupted global supply chains and equity markets and created significant volatility and disruption in financial and labor markets.
If debt securities in an unrealized loss position are sold, such losses become realized and will reduce our regulatory capital ratios. The transition to an alternative reference rate could cause instability and have a negative effect on financial market conditions.
If debt securities in an unrealized loss position are sold, such losses become realized and will reduce our regulatory capital ratios. The proportion of the Corporation’s deposit account balances that exceed FDIC insurance limits may expose the Bank to enhanced liquidity risk.
Removed
At December 31, 2022, our allowance for loan and lease losses as a percentage of total loans and leases was 0.99% and as a percentage of total non-performing loans and leases was 662.20%.
Added
Commercial real estate markets have been facing downward pressure since 2022 due in large part to increasing interest rates and declining property values.
Removed
Significant increases to the allowance for loan and leases losses and the recourse reserve may materially decrease our net income, which may adversely affect our business, results of operations, and financial condition. Non-performing assets take significant time to resolve, adversely affect our results of operations and financial condition, and could result in losses.
Added
Accordingly, the federal banking agencies have expressed concerns about weaknesses in the current commercial real estate market and have applied increased regulatory scrutiny to institutions with commercial real estate loan portfolios that are fast growing or large relative to the institutions' total capital.
Removed
The FASB issued an accounting standard that may require us to increase our allowance for loan losses and may have a material adverse effect on our financial condition and results of operations. The FASB has issued a new accounting standard that will be effective for us beginning on January 1, 2023.
Added
To address supervisory expectations with respect to financial institutions’ handling of commercial real estate borrowers who are experiencing financial difficulty, in June of 2023, the federal banking agencies, including the FDIC, issued an interagency policy statement addressing prudent commercial real estate loan accommodations and workouts.

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Item 2. Properties

Properties — owned and leased real estate

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Properties The following table provides certain summary information with respect to the principal properties in which we conduct our operations, all of which were leased, as of December 31, 2022: Location Function Expiration Date 401 Charmany Drive, Madison, WI Full-service banking location of FBB - South Central Region and office of FBFS 2028 17335 Golf Parkway, Brookfield, WI Full-service banking location of FBB - Southeast Region 2032 11300 Tomahawk Creek Pkwy, Leawood, KS Full-service banking location of FBB - Kansas City Region 2023 3913 West Prospect Avenue, Appleton, WI Full-service banking location of FBB - Northeast Region 2025 For the purpose of generating business development opportunities in our niche commercial lending and consulting businesses, as of December 31, 2022, office space was also leased in several states nationwide under shorter-term lease agreements, which generally have terms of one year or less.
Properties The following table provides certain summary information with respect to the principal properties in which we conduct our operations, all of which were leased, as of December 31, 2023: Location Function Expiration Date 401 Charmany Drive, Madison, WI Full-service banking location of FBB - South Central Region and office of FBFS 2028 17335 Golf Parkway, Brookfield, WI Full-service banking location of FBB - Southeast Region 2032 11141 Overbrook Road, Leawood, KS Full-service banking location of FBB - Kansas City Region 2033 3913 West Prospect Avenue, Appleton, WI Full-service banking location of FBB - Northeast Region 2025 For the purpose of generating business development opportunities in our specialized lending and consulting businesses, as of December 31, 2023, office space was also leased in several states nationwide under shorter-term lease agreements, which generally have terms of one year or less. 30 Table of Contents

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Item 3. Legal Proceedings We believe that no litigation is threatened or pending in which we face potential loss or exposure which could materially affect our consolidated financial position, consolidated results of operations, or consolidated cash flows.
Item 3. Legal Proceedings We believe no litigation is threatened or pending in which we face potential loss or exposure which could materially affect our consolidated financial position, consolidated results of operations, or consolidated cash flows. Since our subsidiaries act as depositories of funds, lenders, and fiduciaries, they are occasionally named as defendants in lawsuits involving a variety of claims.
Since our subsidiaries act as depositories of funds, lenders, and fiduciaries, they are occasionally named as defendants in lawsuits involving a variety of claims. This and other litigation is ordinary, routine litigation incidental to our business. 29 Table of Contents Item 4. Mine Safety Disclosures Not applicable. 30 Table of Contents PART II.
This and other litigation is ordinary, routine litigation incidental to our business. Item 4. Mine Safety Disclosures Not applicable. 31 Table of Contents PART II.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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The following table sets forth information about the Corporation's purchases of its common stock during the three months ended December 31, 2022.
The following table sets forth information about the Corporation's purchases of its common stock during the three months ended December 31, 2023.
Stock Performance Graph The chart shown below depicts total return to shareholders during the period beginning December 31, 2017 and ending December 31, 2022. The total return includes appreciation or depreciation in market value of the Corporation’s common stock as well as actual cash and stock dividends paid to common stockholders.
Stock Performance Graph The chart shown below depicts total return to shareholders during the period beginning December 31, 2018 and ending December 31, 2023. The total return includes appreciation or depreciation in market value of the Corporation’s common stock as well as actual cash and stock dividends paid to common stockholders.
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Holders The common stock of the Corporation is traded on the Nasdaq Global Select Market under the symbol “FBIZ.” As of February 9, 2023, there were 371 registered shareholders of record of the Corporation’s common stock.
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Holders The common stock of the Corporation is traded on the Nasdaq Global Select Market under the symbol “FBIZ.” As of February 15, 2024, there were 361 registered shareholders of record of the Corporation’s common stock.
Under the new share repurchase program, the Corporation is authorized to repurchase shares from time to time in the open market or negotiated transactions at prevailing market rates, or by other means in accordance with federal securities laws.
Under the recently expired share repurchase program, the Corporation was authorized to repurchase shares from time to time in the open market or negotiated transactions at prevailing market rates, or by other means in accordance with federal securities laws.
Period Total Number of Shares Purchased (1) Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Total Number of Shares that May Yet Be Purchased Under the Plans or Programs October 1, 2022 - October 31, 2022 15,680 $ 33.76 15,680 November 1, 2022 - November 30, 2022 30,589 39.03 29,455 December 1, 2022 - December 31, 2022 23,884 37.66 23,884 Total 70,153 69,019 — (1) During the fourth quarter of 2022, the Corporation repurchased an aggregate 70,153 shares of the Corporation’s common stock in open-market transactions, of which 69,019 shares were purchased pursuant to the repurchase program publicly announced on March 4, 2022, and of which 1,134 shares were surrendered to us to satisfy income tax withholding obligations in connection with the vesting of restricted awards. 32 Table of Contents Item 6.
Period Total Number of Shares Purchased (1) Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Total Number of Shares that May Yet Be Purchased Under the Plans or Programs October 1, 2023 - October 31, 2023 — $ — — November 1, 2023 - November 30, 2023 458 34.30 — December 1, 2023 - December 31, 2023 — — — Total 458 — 74,813 (1) During the fourth quarter of 2023, the Corporation repurchased an aggregate 458 shares of the Corporation’s common stock in open-market transactions, of which no shares were purchased pursuant to the repurchase program publicly announced on January 27, 2023, and of which 458 shares were surrendered to us to satisfy income tax withholding obligations in connection with the vesting of restricted awards.
The chart assumes that he value of the investment in FBIZ common stock and each of the three indices was $100 on December 31, 2017 and that all dividends were reinvested in FBIZ common stock. 31 Table of Contents As of December 31, Index 2017 2018 2019 2020 2021 2022 First Business Financial Services, Inc. $ 100.00 $ 90.34 $ 125.17 $ 90.82 $ 147.88 $ 189.55 NASDAQ Composite Index 100.00 97.16 132.81 192.47 235.15 158.65 KBW NASDAQ Bank Index 100.00 82.29 112.01 100.46 138.97 109.23 Issuer Purchases of Securities On March 4, 2022, the Board of Directors of the Corporation approved a share repurchase program.
The chart assumes that the value of the investment in FBIZ common stock and each of the three indices was $100 on December 31, 2018 and that all dividends were reinvested in FBIZ common stock. 32 Table of Contents As of December 31, Index 2018 2019 2020 2021 2022 2023 First Business Financial Services, Inc. $ 100.00 $ 138.56 $ 100.53 $ 163.69 $ 209.82 $ 236.96 NASDAQ Composite Index 100.00 136.69 198.10 242.03 163.28 236.17 KBW NASDAQ Bank Index 100.00 136.13 122.09 168.88 132.75 131.57 Issuer Purchases of Securities As previously announced, effective January 27, 2023, the Corporation’s Board of Directors authorized the repurchase by the Corporation of shares of its common stock with a maximum aggregate purchase price of $5.0 million, effective January 31, 2023 through January 31, 2024.
Removed
The program authorized the repurchase by the Corporation of up to $5 million of its total outstanding shares of common stock over a period of approximately twelve months, ending March 4, 2023.
Added
As of December 31, 2023, the Corporation had repurchased a total of 65,112 shares for approximately $2.0 million at an average cost of $30.72 per share. At this time, the Corporation does not expect to adopt a new plan upon its expiration to replace the recently expired plan due to strong balance sheet growth.
Removed
As of December 16, 2022, the Corporation had completed the share repurchase program, repurchasing a total of 142,074 shares for approximately $5.0 million at an average cost of $35.12 per share.
Added
The Corporation did not repurchase any shares pursuant to the publicly announced program described above during the quarter. 33 Table of Contents Item 6. [Reserved]
Removed
Effective January 27, 2023, the Corporation’s Board of Directors authorized a new share repurchase program with a maximum aggregate purchase price of $5.0 million, in such quantities, at such prices, and on such other terms and conditions as the Corporation’s Chief Executive Officer or Chief Financial Officer determine in their discretion to be in the best interests of the Corporation and its shareholders, any time from the effective date through January 31, 2024.
Removed
In connection with the share repurchase program, the Corporation has implemented a trading plan intended to satisfy the affirmative defense conditions of Rule 10b5-1 under the Securities Exchange Act.
Removed
The trading plan allows the Corporation to repurchase shares of its common stock at times when it otherwise might have been prevented from doing so under insider trading laws by requiring that an agent selected by the Corporation repurchase shares of common stock on the Corporation’s behalf on pre-determined terms.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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In order to provide for ongoing liquidity and funding, all of our wholesale funds are certificates of deposit which do not allow for withdrawal at the option of the depositor before the stated maturity (with the exception of deposits accumulated through the internet listing service which have the same early withdrawal privileges and fees as do our other in-market deposits) and FHLB advances with contractual maturity terms and no call provisions.
In order to provide for ongoing liquidity and funding, substantially all of our wholesale funds are certificates of deposit which do not allow for withdrawal at the option of the depositor before the stated maturity (with the exception of deposits accumulated through the internet listing service which have the same early withdrawal privileges and fees as do our other in-market deposits) and FHLB advances with contractual maturity terms and no call provisions.
See Note 1 – Nature of Operations and Summary of Significant Accounting Policies for the Corporation's accounting policy on goodwill and see Note 7 – Goodwill and Other Intangible Assets in the Consolidated Financial Statements for a detailed discussion of the factors considered by management in the assessment. Income Taxes.
See Note 1 – Nature of Operations and Summary of Significant Accounting Policies for the Corporation's accounting policy on goodwill and see Note 7 – Goodwill and Intangible Assets in the Consolidated Financial Statements for a detailed discussion of the factors considered by management in the assessment. Income Taxes.
Business development officers have no individual lending authority limits, and thus, a significant portion of our new credit extensions require approval from a loan approval committee regardless of the type of loan or lease, amount of the credit, or the related complexities of each proposal.
Business development officers have no individual lending authority limits, and thus, a significant portion of our new credit extensions require approval from a loan approval committee regardless of the type of loan or lease, or the related complexities of each proposal.
Long-Term Strategic Plan In early 2019, management finalized the development of its five year strategic plan and began the implementation of strategies and initiatives that drive successful execution. Management’s objective over this five year period is to excel by building an expert team with diverse experiences who work together to impact client success more than any other financial partner.
Long-Term Strategic Plan In early 2019, management finalized the development of its five year strategic plan and began the implementation of strategies and initiatives that drive successful execution. Management’s objective over this five year period was to excel by building an expert team with diverse experiences who work together to impact client success more than any other financial partner.
While mortgage-backed securities present prepayment risk and extension risk, we believe the overall credit risk associated with these investments is minimal, as the majority of the securities we hold are guaranteed by the United States Treasury, the Federal National Mortgage Association (“FNMA”), the Federal Home Loan Mortgage Corporation (“FHLMC”), or the Government National Mortgage Association (“GNMA”), a U.S. government agency.
While mortgage-backed securities present prepayment risk and extension risk, we believe the overall credit risk associated with these investments is minimal, as all of the securities we hold are guaranteed by the United States Treasury, the Federal National Mortgage Association (“FNMA”), the Federal Home Loan Mortgage Corporation (“FHLMC”), or the Government National Mortgage Association (“GNMA”), a U.S. government agency.
The Corporation conducted its annual impairment test as of July 1, 2022, utilizing a qualitative assessment, and concluded that it was more likely than not the estimated fair value of the reporting unit exceeded its carrying value, resulting in no impairment. Although no goodwill impairment was noted, there can be no assurances that future goodwill impairment will not occur.
The Corporation conducted its annual impairment test as of July 1, 2023, utilizing a qualitative assessment, and concluded that it was more likely than not the estimated fair value of the reporting unit exceeded its carrying value, resulting in no impairment. Although no goodwill impairment was noted, there can be no assurances that future goodwill impairment will not occur.
The discussion should be read in conjunction with the Consolidated Financial Statements and the Notes thereto. 33 Table of Contents Overview We are a registered bank holding company incorporated under the laws of the State of Wisconsin and are engaged in the commercial banking business through our wholly-owned banking subsidiary, FBB.
The discussion should be read in conjunction with the Consolidated Financial Statements and the Notes thereto. 34 Table of Contents Overview We are a registered bank holding company incorporated under the laws of the State of Wisconsin and are engaged in the commercial banking business through our wholly-owned banking subsidiary, FBB.
Both short-term investments and cash and due from banks increased during 2022. Short-term investments primarily consist of interest-bearing deposits held at the Federal Reserve Bank (“FRB”). We value the safety and soundness provided by the FRB, and therefore, we incorporate short-term investments in our on-balance sheet liquidity program.
Both short-term investments and cash and due from banks increased during 2023. Short-term investments primarily consist of interest-bearing deposits held at the Federal Reserve Bank (“FRB”). We value the safety and soundness provided by the FRB, and therefore, we incorporate short-term investments in our on-balance sheet liquidity program.
As of December 31, 2022, no issuer's securities exceeded 10% of our total stockholders' equity. The following table sets forth the contractual maturity and weighted average yield characteristics of the fair value of our available-for-sale securities and the amortized cost of our held-to-maturity securities at December 31, 2022, classified by remaining contractual maturity.
As of December 31, 2023, no issuer's securities exceeded 10% of our total stockholders' equity. The following table sets forth the contractual maturity and weighted average yield characteristics of the fair value of our available-for-sale securities and the amortized cost of our held-to-maturity securities at December 31, 2023, classified by remaining contractual maturity.
Adverse developments affecting real estate values in one or more of our markets could impact collateral coverage associated with the commercial real estate segment of our portfolio, possibly leading to increased specific reserves or charge-offs, which would adversely affect profitability.
Adverse developments affecting real estate values in one or more of our markets could impact collateral coverage associated with the commercial real estate segment of our portfolio, possibly leading to increased specific reserves or charge-offs, which would adversely affect profitability. Commercial and Industrial.
Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements When used in this report the words or phrases “may,” “could,” “should,” “hope,” “might,” “believe,” “expect,” “plan,” “assume,” “intend,” “estimate,” “anticipate,” “project,” “likely,” or similar expressions are intended to identify “forward-looking statements.” Such statements are subject to risks and uncertainties, including among other things: • Adverse changes in the economy or business conditions, either nationally or in our markets, including, without limitation, inflation, supply chain issues, labor shortages, wage pressures, 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 our markets. • Increases in defaults by borrowers and other delinquencies. • Our ability to manage growth effectively, including the successful expansion of our client support, administrative infrastructure, and internal management systems. • Fluctuations in interest rates and market prices. • Changes in legislative or regulatory requirements applicable to us and our subsidiaries. • Changes in tax requirements, including tax rate changes, new tax laws, and revised tax law interpretations. • Fraud, including client and system failure or breaches of our network security, including our internet banking activities. • Failure to comply with the applicable SBA regulations in order to maintain the eligibility of the guaranteed portions of SBA loans.
Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements When used in this report the words or phrases “may,” “could,” “should,” “hope,” “might,” “believe,” “expect,” “plan,” “assume,” “intend,” “estimate,” “anticipate,” “project,” “likely,” or similar expressions are intended to identify “forward-looking statements.” Such statements are subject to risks and uncertainties, including among other things: • Adverse changes in the economy or business conditions, either nationally or in our markets, including, without limitation, inflation, supply chain issues, economic downturn, labor shortages, wage pressures, and the adverse effects of public health events on the global, national, and local economy. • Competitive pressures among depository and other financial institutions nationally and in our markets. • Increases in defaults by borrowers and other delinquencies. • Our ability to manage growth effectively, including the successful expansion of our client support, administrative infrastructure, and internal management systems. • Fluctuations in interest rates and market prices. • Changes in legislative or regulatory requirements applicable to us and our subsidiaries. • Changes in tax requirements, including tax rate changes, new tax laws, and revised tax law interpretations. • Fraud, including client and system failure or breaches of our network security, including our internet banking activities. • Failure to comply with the applicable SBA regulations in order to maintain the eligibility of the guaranteed portions of SBA loans.
Refer to Note 9 - Deposits in the Consolidated Financial Statements for additional information regarding our deposit composition. The following table sets forth the amount and maturities of the Bank’s certificates of deposit and term wholesale deposits at December 31, 2022.
Refer to Note 9 - Deposits in the Consolidated Financial Statements for additional information regarding our deposit composition. The following table sets forth the amount and maturities of the Bank’s certificates of deposit and term wholesale deposits at December 31, 2023.
The Corporation has filed a shelf registration with the Securities and Exchange Commission that would allow the Corporation to offer and sell, from time to time and in one or more offerings, up to $75.0 million in aggregate initial offering price of common and preferred stock, debt securities, warrants, subscription rights, units, or depository shares, or any combination thereof.
The Corporation maintains a shelf registration with the Securities and Exchange Commission that would allow the Corporation to offer and sell, from time to time and in one or more offerings, up to $75.0 million in aggregate initial offering price of common and preferred stock, debt securities, warrants, subscription rights, units, or depository shares, or any combination thereof.
The capital ratios of the Bank met all applicable regulatory capital adequacy requirements in effect on December 31, 2022, and continue to meet the heightened requirements imposed by Basel III, including the capital conservation buffer.
The capital ratios of the Bank met all applicable regulatory capital adequacy requirements in effect on December 31, 2023, and continue to meet the heightened requirements imposed by Basel III, including the capital conservation buffer.
The estimated repayment streams associated with this portfolio also allow us to better match short-term liabilities. The Bank’s investment policies allow for various types of investments, including tax-exempt municipal securities. The ability to invest in tax-exempt municipal securities provides for further opportunity to improve our overall yield on the securities portfolio.
The estimated repayment streams associated with this portfolio also allow 45 Table of Contents us to better match short-term liabilities. The Bank’s investment policies allow for various types of investments, including tax-exempt municipal securities. The ability to invest in tax-exempt municipal securities provides for further opportunity to improve our overall yield on the securities portfolio.
Private 43 Table of Contents wealth management services fee income is primarily driven by the amount of trust assets under management and administration, as well as the mix of business at different fee structures, and can be positively or negatively influenced by the timing and magnitude of volatility within the equity and fixed income markets.
Private wealth management services fee income is primarily driven by the amount of trust assets under management and administration, as well as the mix of business at different fee structures, and can be positively or negatively influenced by the timing and magnitude of volatility within the equity and fixed income markets.
The deterioration of one or a few of these loans could cause a material increase in our level of nonperforming loans, which would result in a loss of revenue from these loans and could result in an increase in the provision for loan and lease losses and an increase in charge-offs, all of which could have a material adverse impact on our net income.
The deterioration of one or a few of these loans could cause a material increase in our level of nonperforming loans, which would result in a loss of revenue from these loans and could result in an increase in the provision for credit losses and an increase in charge-offs, all of which could have a material adverse impact on our net income.
For each dividend period from and including March 15, 2027, dividends will be paid at a floating rate of Three-Month Term SOFR plus a spread of 539 basis points per annum. During the year ended December 31, 2022, the Corporation paid $683,000 in preferred cash dividends. The Series A Preferred Stock is perpetual and has no stated maturity.
For each dividend period from and including March 15, 2027, dividends will be paid at a floating rate of Three-Month Term SOFR plus a spread of 539 basis points per annum. During the year ended December 31, 2023, the Corporation paid $875,000 in preferred cash dividends. The Series A Preferred Stock is perpetual and has no stated maturity.
The table below displays the beta calculations for loans and leases, total interest earning assets, in-market deposits, interest-bearing deposits and total interest-bearing liabilities for the year ended December 31, 2022 and 2021.
The table below displays the beta calculations for loans and leases, total interest earning assets, in-market deposits, interest-bearing deposits and total interest-bearing liabilities for the year ended December 31, 2023 and 2022.
The Bank limits the percentage of wholesale funds to total bank funds in accordance with liquidity policies approved by its Board. The Bank was in compliance with its policy limits as of December 31, 2022.
The Bank limits the percentage of wholesale funds to total bank funds in accordance with liquidity policies approved by its Board. The Bank was in compliance with its policy limits as of December 31, 2023.
In the event that there is a disruption in the availability of wholesale funds 62 Table of Contents at maturity, the Bank has managed the maturity structure, in compliance with our approved liquidity policy, so at least one year of maturities could be funded through readily available liquidity.
In the event that there is a disruption in the availability of wholesale funds at maturity, the Bank has managed the maturity structure, in compliance with our approved liquidity policy, so at least one year of maturities could be funded through readily available liquidity.
The table below shows the Corporation’s performance for the years ended December 31, 2022, 2021, and 2020 in comparison to the key performance indicators included in the Corporation’s 2019 strategic plan.
The table below shows the Corporation’s performance for the years ended December 31, 2023, 2022, and 2021 in comparison to the key performance indicators included in the Corporation’s 2019 strategic plan.
We view critical accounting policies to be those which are highly dependent on subjective or complex judgments, estimates and assumptions, and where changes in those estimates and assumptions could have a significant impact on the financial statements. Allowance for Loan and Lease Losses.
We view critical accounting policies to be those which are highly dependent on subjective or complex judgments, estimates and assumptions, and where changes in those estimates and assumptions could have a significant impact on the financial statements. Allowance for Credit Losses.
The Bank was able to access the wholesale funding market as needed at rates and terms comparable to market standards during the year ended December 31, 2022.
The Bank was able to access the wholesale funding market as needed at rates and terms comparable to market standards during the year ended December 31, 2023.
Operating revenue is defined as net interest income plus non-interest income less realized net gains or losses on securities, if any, and other discrete items. PTPP adjusted earnings for the year ended December 31, 2022 was $47.9 million, compared to $41.2 million for the year ended December 31, 2021.
Operating revenue is defined as net interest income plus non-interest income less realized net gains or losses on securities, if any, and other discrete items. PTPP adjusted earnings for the year ended December 31, 2023 was $56.2 million, compared to $47.9 million for the year ended December 31, 2022.
As of December 31, 2022 and 2021, interest-bearing deposits held at the FRB were $76.5 million and $47.0 million, respectively.
As of December 31, 2023 and 2022, interest-bearing deposits held at the FRB were $76.5 million and $47.0 million, respectively.
Management is proactive in recording charge-offs to bring loans to their net realizable value in situations where it is determined with certainty that we will not recover the entire amount of our principal. This practice may lead to a lower allowance for loan and lease loss to non-accrual loans and leases ratio as compared to our peers or industry expectations.
Management is proactive in recording charge-offs to bring loans to their net realizable value in situations where it is determined with certainty that we will not recover the entire amount of our principal. This practice may lead to a lower allowance for credit loss to non-performing loans and leases ratio as compared to our peers or industry expectations.
Our Bank’s in-market deposits are obtained primarily from the South Central, Northeast and Southeast regions of Wisconsin and the greater Kansas City Metro. We measure the success of in-market deposit gathering efforts based on the average balances of our deposit accounts as compared to ending balances due to the volatility of some of our larger relationships.
Our Bank’s in-market deposits are obtained primarily from the South Central, Northeast and Southeast regions of Wisconsin and the greater Kansas City Metro. We measure the success of in-market deposit gathering efforts based on the average balances of our deposit accounts rather than ending balances due to the volatility of some of our larger relationships.
Although we believe the allowance for loan and lease losses was appropriate based on the current level of loan and lease delinquencies, non-accrual loans and leases, trends in charge-offs, economic conditions, and other factors as of December 31, 2022, there can be no assurance that future adjustments to the allowance will not be necessary.
Although we believe the ACL was appropriate based on the current level of loan and lease delinquencies, non-accrual loans and leases, trends in charge-offs, economic conditions, and other factors as of December 31, 2023, there can be no assurance that future adjustments to the allowance will not be necessary.
PTPP adjusted earnings allows management to benchmark performance of our model to our peers without the influence of the loan loss provision and 36 Table of Contents tax considerations, which will ultimately influence other traditional financial measurements, including ROA and ROACE. The information provided below reconciles the efficiency ratio to its most comparable GAAP measure.
PTPP adjusted earnings allows management to benchmark performance of our model to our peers without the influence of the loan loss provision and tax considerations, which will ultimately influence other traditional financial measurements, including ROA and ROAE. The information provided below reconciles the efficiency ratio to its most comparable GAAP measure.
As of December 31, 2022 2021 Amortized Cost Fair Value Amortized Cost Fair Value (In Thousands) Available-for-sale: U.S.
As of December 31, 2023 2022 Amortized Cost Fair Value Amortized Cost Fair Value (In Thousands) Available-for-sale: U.S.
However, the collection of loan fees in lieu of interest is an expected source of volatility to quarterly net interest income and net interest margin. In addition, net interest margin may also experience volatility due to events such as the collection of interest on loans previously in non-accrual status or the accumulation of significant short-term deposit inflows.
The collection of loan fees in lieu of interest is an expected source of volatility to quarterly net 41 Table of Contents interest income and net interest margin. Net interest margin may also experience volatility due to events such as the collection of interest on loans previously in non-accrual status or the accumulation of significant short-term deposit inflows.
The allowance for loan and lease losses represents our recognition of the risks of extending credit and our evaluation of the quality of the loan and lease portfolio and as such, requires the use of judgment as well as other systematic objective and quantitative methods which may include additional assumptions and estimates.
The ACL represents our recognition of the risks of extending credit and our evaluation of the quality of the loan and lease portfolio and as such, requires the use of judgment as well as other systematic objective and quantitative methods which may include additional assumptions and estimates.
Provision for Loan and Lease Losses We determined our provision for loan and lease losses pursuant to our allowance for loan and lease loss methodology, which is based on the magnitude of current and historical net charge-offs recorded throughout the established look-back period, the evaluation of several qualitative factors for each portfolio category, and the amount of specific reserves established for impaired loans that present collateral shortfall positions.
Provision for Credit Losses We determined our provision for credit losses pursuant to our allowance for credit loss methodology, which is based on the magnitude of current and historical net charge-offs recorded throughout the established look-back period, the evaluation of several qualitative factors for each portfolio category, and the amount of specific reserves established for non-performing loans that present collateral shortfall positions.
On the offsetting swap contracts with dealer counterparties, we pay fixed rates and receive floating rates based upon designated benchmark interest rates. These interest rate swaps also have maturity dates between May 2024 and June 2039.
On the offsetting swap contracts with dealer counterparties, we pay fixed rates and receive floating rates based upon designated benchmark interest rates. These interest rate swaps also have maturity dates between May 2024 and July 2040.
Adjusted net interest margin is a non-GAAP measure representing net interest income excluding the fees in lieu of interest and other recurring but volatile components of net interest margin divided by average interest-earning assets less average net PPP loans, if any, and other recurring but volatile components of average interest-earning assets.
Adjusted net interest margin is a non-GAAP measure representing net interest income excluding the fees in lieu of interest and other recurring, but volatile, components of net interest margin divided by average interest-earning assets less other recurring, but volatile, components of average interest-earning assets.
These potential funding sources include deposits maintained at the FRB or Federal Reserve Discount Window utilizing currently unencumbered securities and acceptable loans as collateral. As of December 31, 2022, the available liquidity was in excess of the stated policy minimum.
These potential funding sources include deposits maintained at 60 Table of Contents the FRB or Federal Reserve Discount Window utilizing currently unencumbered securities and acceptable loans as collateral. As of December 31, 2023, the available liquidity was in excess of the stated policy minimum.
Stockholders’ equity increased by $28.2 million during the year ended December 31, 2022 attributable to net income of $40.9 million for the year ended December 31, 2022, partially offset by preferred and common stock dividend declarations of $683,000 and $6.7 million, respectively, and stock repurchases of $5.0 million authorized under the repurchase program discussed below.
Stockholders’ equity increased by $28.9 million during the year ended December 31, 2023 attributable to net income of $37.0 million for the year ended December 31, 2023, partially offset by preferred and common stock dividend declarations of $875,000 and $7.6 million, respectively, and stock repurchases of $2.0 million of the $5.0 million authorized under the repurchase program discussed below.
We view readily accessible liquidity as a critical element to meet our cash and collateral obligations. We define our readily accessible liquidity as the total of our short-term investments, our unencumbered securities available-for-sale, and our unencumbered pledged loans. As of December 31, 2022 and 2021, our readily accessible liquidity was $449.6 million and $529.5 million, respectively.
We view readily accessible liquidity as a critical element to meet our cash and collateral obligations. We define our readily accessible liquidity as the total of our short-term investments, our unencumbered securities available-for-sale, and our unencumbered pledged loans. As of December 31, 2023 and 2022, our readily accessible liquidity was $734.4 million and $449.6 million, respectively.
Refer to Asset Quality , below, for further information regarding the overall credit quality of our loan and lease portfolio. Non-Interest Income Non-interest income increased by $1.3 million, or 4.7%, to $29.4 million for the year ended December 31, 2022, from $28.1 million for the year ended December 31, 2021.
Refer to Asset Quality , below, for further information regarding the overall credit quality of our loan and lease portfolio. Non-Interest Income Non-interest income increased by $1.9 million, or 6.4%, to $31.3 million for the year ended December 31, 2023, from $29.4 million for the year ended December 31, 2022.
This increase was driven by an increase in average trust assets under management and administration, which is attributable to both new client relationships and new money from existing client relationships.
This increase was driven by an increase in average assets under management and administration, which is attributable to market appreciation, new client relationships, and new money from existing client relationships.
Management continues to focus on revenue growth from multiple non-interest income sources in order to maintain a diversified revenue stream through greater contributions from fee-based revenues. Total non-interest income accounted for 23.0% of our total revenues in 2022 compared to 24.9% in 2021.
Management continues to focus on revenue growth from multiple non-interest income sources in order to maintain a diversified revenue stream through greater contributions from fee-based revenues. Total non-interest income accounted for 21.8% of our total revenues in 2023 compared to 23.0% in 2022.
The Corporation’s principal liquidity requirements at December 31, 2022 were the interest payments due on subordinated notes and cash dividends payable to both common and preferred stockholders. During 2022 and 2021, FBB declared and paid dividends totaling $2.0 million and $8.5 million, respectively.
The Corporation’s principal liquidity requirements at December 31, 2023 were the interest payments due on subordinated notes and cash dividends payable to both common and preferred stockholders. During 2023 and 2022, FBB declared and paid dividends totaling $12.1 million and $2.0 million, respectively.
Period-end in-market deposits increased $37.7 million, or 2.0%, to $1.966 billion at December 31, 2022 from $1.928 billion at December 31, 2021 as in-market deposit balances increased due to successful business development efforts, partially offset by deposit movement from money market accounts to, alternative investment options, and clients funding their normal course of business.
Period-end in-market deposits increased $373.1 million, or 19.0%, to $2.339 billion at December 31, 2023 from $1.966 billion at December 31, 2022 as in-market deposit balances increased due to successful business development efforts, partially offset by deposit movement from money market accounts to, alternative investment options, and clients funding their normal course of business.
The average rate paid on interest-bearing liabilities was 1.23% for the year ended December 31, 2022, an increase of 60 basis points from 0.63% for the year ended December 31, 2021. The average rate paid increased as the Corporation increased deposit rates and secured wholesale funding, which consists of wholesale deposits and FHLB advances, at elevated fixed rates.
The average rate paid on interest-bearing liabilities was 3.46% for the year ended December 31, 2023, an increase of 223 basis points from 1.23% for the year ended December 31, 2022. The average rate paid increased as the Corporation increased deposit rates and secured wholesale funding, which consists of wholesale deposits and FHLB advances, at elevated fixed rates.
Dealer counterparty swaps are subject to master netting agreements among the contracts within our Bank and were reported on the Consolidated Balance Sheet as a net derivative asset of $60.4 million as of December 31, 2022, compared to a net derivative liability of $19.7 million as of December 31, 2021.
Dealer counterparty swaps are subject to master netting agreements among the contracts within our Bank and were reported on the Consolidated Balance Sheet as a net derivative asset of $43.2 million as of December 31, 2023, compared to a net derivative asset of $60.4 million as of December 31, 2022.
Although we believe that the allowance for loan and lease losses was appropriate as of December 31, 2022 based upon the evaluation of loan and lease delinquencies, non-performing assets, charge-off trends, economic conditions, and other factors, there can be no assurance that future adjustments to the allowance will not be necessary.
Although we believe that the ACL was appropriate as of December 31, 2023 based upon the evaluation of loan and lease delinquencies, non-performing assets, charge-off trends, economic conditions, and other factors, there can be no assurance that future adjustments to the allowance will not be necessary. Goodwill Impairment Assessment.
Efficiency Ratio and Pre-Tax, Pre-Provision Adjusted Earnings Efficiency ratio measured 62.31% and 63.49% for the years ended December 31, 2022 and 2021, respectively. Efficiency ratio is a non-GAAP measure representing operating expense divided by operating revenue.
Efficiency Ratio and Pre-Tax, Pre-Provision Adjusted Earnings Efficiency ratio measured 60.99% and 62.31% for the years ended December 31, 2023 and 2022, respectively. Efficiency ratio is a non-GAAP measure representing operating expense divided by operating revenue.
Operating expense, which excludes certain one-time and discrete items as defined in the Efficiency Ratio table above, increased $7.6 million, or 10.6%, to $79.2 million for the year ended December 31, 2022 compared to $71.6 million for the year ended December 31, 2021.
Operating expense, which excludes certain one-time and discrete items as defined in the Efficiency Ratio table above, increased $8.6 million, or 10.9%, to $87.8 million for the year ended December 31, 2023 compared to $79.2 million for the year ended December 31, 2022.
A securities portfolio with a longer average duration will exhibit greater market price volatility than a securities portfolio with a shorter average duration in a changing rate environment. During the year ended December 31, 2022, we recognized unrealized holding losses of $27.7 million before income taxes through other comprehensive income.
A securities portfolio with a longer average duration will exhibit greater market price volatility than a securities portfolio with a shorter average duration in a changing rate environment. During the year ended December 31, 2023, we recognized unrealized holding gains of $5.6 million before income taxes through other comprehensive income.
As of December 31, 2022, the aggregate amortizing notional value of interest rate swaps with various commercial borrowers was approximately $744.2 million, compared to $640.6 million as of December 31, 2021. We receive fixed rates and pay floating rates based upon designated benchmark interest rates on the swaps with commercial borrowers. These swaps mature between May 2024 and June 2039.
As of December 31, 2023, the aggregate amortizing notional value of interest rate swaps with various commercial borrowers was approximately $939.2 million, compared to $744.2 million as of December 31, 2022. We receive fixed rates and pay floating rates based upon designated benchmark interest rates on the swaps with commercial borrowers. These swaps mature between May 2024 and July 2040.
We had $618.6 million of outstanding wholesale funds at December 31, 2022, compared to $398.4 million of wholesale funds as of December 31, 2021, which represented 23.9% and 17.1%, respectively, of period end total bank funding. Wholesale funds include FHLB advances, brokered certificates of deposit, and deposits gathered from internet listing services.
We had $739.2 million of outstanding wholesale funds at December 31, 2023, compared to $618.6 million of wholesale funds as of December 31, 2022, which represented 24.0% and 23.9%, respectively, of period end total bank funding. Wholesale funds include FHLB advances, brokered certificates of deposit, and deposits gathered from internet listing services.
The program authorized the repurchase by the Corporation of up to $5 million of its total outstanding shares of common stock over a period of approximately twelve months, ending January 31, 2024.
On January 27, 2023, the Board of Directors of the Corporation approved a share repurchase program. The program authorized the repurchase by the Corporation of up to $5 million of its total outstanding shares of common stock over a period of approximately twelve months, ending January 31, 2024.
Financing cash flows included a $210.3 million net increase in deposits and a $47.6 million net increase in FHLB advances, partially offset by cash dividends paid of $6.7 million, and authorized share repurchases of $5.0 million, respectively.
Financing cash flows included a $628.6 million net increase in deposits and a $134.9 million net increase in FHLB advances, partially offset by cash dividends paid of $7.6 million, and share repurchases of $3.0 million, respectively.
At December 31, 2022, $35.9 million of our securities were pledged to secure various obligations, including interest rate swap contracts and municipal deposits. 46 Table of Contents The tables below set forth information regarding the amortized cost and fair values of our securities.
As of December 31, 2023 no securities were classified as trading securities. At December 31, 2023, $45.4 million of our securities were pledged to secure various obligations, including interest rate swap contracts and municipal deposits. 46 Table of Contents The tables below set forth information regarding the amortized cost and fair values of our securities.
As of December 31, 2022, the commercial borrower swaps were reported on the Consolidated Balance Sheet as a derivative liability and asset of $61.4 million and $1.0 million, respectively, compared to a derivative asset and liability of $26.3 million and $6.6 million, respectively, as of December 31, 2021.
As of December 31, 2023, the commercial borrower swaps were reported on the Consolidated Balance Sheet as a derivative liability and asset of $51.1 million and $7.9 million, respectively, compared to a derivative liability and asset of $61.4 million and $1.0 million, respectively, as of December 31, 2022.
At December 31, 2022 and 2021, the Bank had $76.5 million and $47.0 million on deposit with the FRB recorded in short-term investments, respectively.
At December 31, 2023 and 2022, the Bank had $106.8 million and $76.5 million on deposit with the FRB recorded in short-term investments, respectively.
Private wealth management services fee income increased by $97,000, or 0.9%, to a record $10.9 million for the year ended December 31, 2022 compared to the previous record of $10.8 million for the year ended December 31, 2021.
Private wealth management services fee income increased by $544,000, or 5.0%, to a record $11.4 million for the year ended December 31, 2023 compared to the previous record of $10.9 million for the year ended December 31, 2022.
The gross amount of dealer counterparty swaps as of December 31, 2022, without regard to the enforceable master netting agreement, was a gross derivative asset and liability of $61.4 million and $1.0 million, compared to a gross derivative liability of $26.3 million and gross derivative asset of $6.6 million as of December 31, 2021.
The gross amount of dealer counterparty swaps as of December 31, 2023, without regard to the enforceable master netting agreement, was a gross derivative asset and liability of $51.1 million and $7.9 million, respectively, compared to a gross derivative asset and liability of $61.4 million and $1.0 million, respectively, as of December 31, 2022.
Compensation expense increased by $6.0 million, or 11.7%, to $57.7 million for the year ended December 31, 2022 from $51.7 million for the year ended December 31, 2021 principally due to an increase in average FTEs, annual merit increases, growth in employee benefit costs and increase in incentive compensation.
Compensation expense increased by $3.3 million, or 5.7%, to $61.1 million for the year ended December 31, 2023 from $57.7 million for the year ended December 31, 2022 principally due to an increase in average FTEs, annual merit increases, growth in employee benefit costs, and increase in incentive compensation.
Average in-market deposits for the year 58 Table of Contents ended December 31, 2022 were approximately $1.929 billion, or 80.6% of total bank funding. Total bank funding is defined as total deposits plus FHLB advances. This compares to average in-market deposits of $1.784 billion, or 78.2% of total bank funding, for 2021.
Average in-market deposits for the year ended December 31, 2023 were approximately $2.098 billion, or 75.0% of total bank funding. Total bank funding is defined as total deposits plus FHLB advances. This compares to average in-market deposits of $1.929 billion, or 80.6% of total bank funding, for 2022.
Loan fees increased $504,000, or 20.1%, to $3.0 million for the year ended December 31, 2022, compared to $2.5 million for the same period in 2021. The increase was driven by an increase in equipment finance lending, floorplan finance lending, and conventional lending activity generating additional service fee income.
Loan fees increased $353,000, or 11.7%, to $3.4 million for the year ended December 31, 2023, compared to $3.0 million for the same period in 2022. The increase was driven by an increase in equipment finance and floorplan finance lending activity generating additional service fee income.
The increase in total assets was primarily driven by an increase in loans and leases receivable, cash and cash equivalents, derivatives, and other assets. Total liabilities increased by $295.5 million, or 12.2%, to $2.716 billion as of December 31, 2022 compared to $2.420 billion at December 31, 2021.
The increase in total assets was primarily driven by an increase in loans and leases receivable, cash and cash equivalents, securities, and other assets. Total liabilities increased by $502.3 million, or 18.5%, to $3.218 billion as of December 31, 2023 compared to $2.716 billion at December 31, 2022.
Securities Total securities, including available-for-sale and held-to-maturity, decreased by $789,000 to $224.7 million at December 31, 2022 from $225.4 million at December 31, 2021. As of December 31, 2022 and 2021, our total securities portfolio had a weighted average estimated maturity of approximately 6.3 years and 5.7 years, respectively.
Securities Total securities, including available-for-sale and held-to-maturity, increased by $80.9 million to $305.5 million at December 31, 2023 from $224.7 million at December 31, 2022. As of December 31, 2023 and 2022, our total securities portfolio had a weighted average estimated remaining maturity of approximately 5.6 years and 6.3 years, respectively.
Excluding the impact of recurring loan fees in lieu of interest and PPP fees in both 2022 and 2021, the yield on average earning assets for the year ended December 31, 2022 was 4.52%, an increase of 91 basis points compared to 3.61% for the year ended December 31, 2021.
Excluding the impact of recurring loan fees in lieu of interest in both 2023 and 2022, the yield on average earning assets for the year ended December 31, 2023 was 6.43%, an increase of 193 basis points compared to 4.50% for the year ended December 31, 2022.
Professional fees increased $1.1 million, or 30.6%, for the year ended December 31, 2022 compared to the year ended December 31, 2021. The increase was primarily due to an increase in recruiting expense, audit expenses, legal expense, and a general increase in other professional consulting services for various projects.
Professional fees increased $444,000, or 9.1%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was primarily due to an increase in recruiting expense and a general increase in other professional consulting services for various projects.
The components of top line revenue were as follows: For the Year Ended December 31, Change From Prior Year 2022 2021 2020 $ Change 2022 % Change 2022 $ Change 2021 % Change 2021 (Dollars in Thousands) Net interest income $ 98,422 $ 84,662 $ 77,071 $ 13,760 16.3 % $ 7,591 9.8 % Non-interest income 29,428 28,100 26,940 1,328 4.7 1,160 4.3 % Top line revenue $ 127,850 $ 112,762 $ 104,011 $ 15,088 13.4 $ 8,751 8.4 % Return on Average Assets and Return on Average Common Equity ROAA was 1.46% for the year ended December 31, 2022, compared to 1.37% for the year ended December 31, 2021 principally due to a $13.8 million increase in net interest income partially offset by an increase in operating expenses.
The components of top line revenue were as follows: For the Year Ended December 31, Change From Prior Year 2023 2022 2021 $ Change 2023 % Change 2023 $ Change 2022 % Change 2022 (Dollars in Thousands) Net interest income $ 112,588 $ 98,422 $ 84,662 $ 14,166 14.4 % $ 13,760 16.3 % Non-interest income 31,308 29,428 28,100 1,880 6.4 1,328 4.7 % Top line revenue $ 143,896 $ 127,850 $ 112,762 $ 16,046 12.6 $ 15,088 13.4 % Return on Average Assets and Return on Average Common Equity ROAA was 1.13% for the year ended December 31, 2023, compared to 1.46% for the year ended December 31, 2022 principally due to a $12.1 million increase in provision for credit losses and an $8.6 million increase in operating expenses, partially offset by a $14.2 million increase in net interest income.
See Note 1 – Nature of Operations and Summary of Significant Accounting Policies and Note 4 – Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses in the Consolidated Financial Statements for further discussion of the allowance for loan and lease losses.
See Note 1 – Nature of Operations and Summary of Significant Accounting Policies, Note 3 Securities, and Note 4 – Loans, Leases Receivable, and Allowance for Credit Losses in the Consolidated Financial Statements for further discussion of the ACL.
Additionally, adjusted total loans and leases and total interest-earning assets excludes the volatile impact of fees in lieu of interest. 40 Table of Contents Asset and Liability Beta Analysis For the Year Ended December 31, 2022 2021 2020 2022 Compared to 2021 2021 Compared to 2020 Average Yield/Rate (4) Increase (Decrease) Total loans and leases receivable (a) 5.01 % 4.21 % 4.43 % 0.80 % (0.22) Total interest-earning assets (b) 4.71 % 3.90 4.16 % 0.81 (0.26) Adjusted total loans and leases receivable (1)(c) 4.79 % 3.91 4.32 % 0.88 (0.41) Adjusted total interest-earning assets (1)(d) 4.52 % 3.61 4.03 % 0.91 (0.42) Total in-market deposits (e) 0.60 % 0.14 0.56 % 0.46 (0.42) Total bank funding (2)(f) 0.84 % 0.37 0.86 % 0.47 (0.49) Net interest margin (g) 3.82 % 3.44 3.40 % 0.38 0.04 Adjusted net interest margin (h) 3.64 3.21 3.28 0.43 (0.07) Effective fed funds rate (3)(i) 1.69 % 0.08 % 0.37 % 1.61 % (0.29) % Beta Calculations: Total loans and leases receivable (a)/(i) 49.69 % 75.86 % Total interest-earning assets (b)/(i) 50.15 % 89.66 % Adjusted total loans and leases receivable (1)(c)/(i) 54.66 % 141.38 % Adjusted total interest-earning assets (1)(d)/(i) 56.39 % 144.83 % Total in-market deposits (e)/(i) 28.57 % 144.83 % Total bank funding (2)(f)/(i) 29.19 % 168.97 % Net interest margin (g)/(i) 23.60 % NM Adjusted net interest margin (h)/(i) 26.71 % 24.14 % NM = Not meaningful (1) Excluding average net PPP loans, PPP loan interest income, and fees in lieu of interest.
Additionally, adjusted total loans and leases and total interest-earning assets excludes the volatile impact of fees in lieu of interest. 40 Table of Contents Asset and Liability Beta Analysis For the Year Ended December 31, 2023 2022 2021 2023 Compared to 2022 2022 Compared to 2021 Average Yield/Rate (3) Increase (Decrease) Total loans and leases receivable (a) 6.90 % 5.01 % 4.21 % 1.89 % 0.80 % Total interest-earning assets (b) 6.54 % 4.71 % 3.90 % 1.83 % 0.81 % Adjusted total loans and leases receivable (1)(c) 6.78 % 4.78 % 3.91 % 2.00 % 0.87 % Adjusted total interest-earning assets (1)(d) 6.43 % 4.50 % 3.61 % 1.93 % 0.89 % Total in-market deposits (e) 2.72 % 0.60 % 0.14 % 2.12 % 0.46 % Total bank funding (f) 2.87 % 0.84 % 0.37 % 2.03 % 0.47 % Net interest margin (g) 3.78 % 3.82 % 3.44 % (0.04) % 0.38 % Adjusted net interest margin (h) 3.63 % 3.63 % 3.21 % — % 0.42 % Effective fed funds rate (2)(i) 5.02 % 1.69 % 0.08 % 3.33 % 1.61 % Beta Calculations: Total loans and leases receivable (a)/(i) 56.76 % 49.69 % Total interest-earning assets (b)/(i) 54.98 % 50.31 % Adjusted total loans and leases receivable (1)(c)/(i) 60.06 % 54.04 % Adjusted total interest-earning assets (1)(d)/(i) 57.87 % 55.28 % Total in-market deposits (e)/(i) 63.66 % 28.57 % Total bank funding (f)/(i) 60.96 % 29.19 % Net interest margin (g)/(i) (1.20) % 23.60 % Adjusted net interest margin (h)/(i) — % 26.09 % (1) Excluding average net PPP loans, PPP loan interest income, and fees in lieu of interest.
Stockholders’ Equity As of December 31, 2022, stockholders’ equity was $260.6 million, or 8.8% of total assets, compared to stockholders’ equity of $232.4 million, or 8.8% of total assets, as of December 31, 2021.
Stockholders’ Equity As of December 31, 2023, stockholders’ equity was $289.6 million, or 8.26% of total assets, compared to stockholders’ equity of $260.6 million, or 8.76% of total assets, as of December 31, 2022.
Average in-market deposits of $1.929 billion increased $144.5 million, or 8.1%, for the year ended December 31, 2022, compared to $1.784 billion for the same period in 2021. • Private wealth and trust assets under management and administration decreased by $260.7 million, or 8.9%, to $2.660 billion at December 31, 2022, compared to $2.921 billion at December 31, 2021.
Average in-market deposits of $2.098 billion increased $169.3 million, or 8.8%, for the year ended December 31, 2023, compared to $1.929 billion for the same period in 2022. • Private wealth and trust assets under management and administration increased by $461.5 million, or 17.3%, to $3.122 billion at December 31, 2023, compared to $2.660 billion at December 31, 2022.
We expect to establish new client relationships and continue marketing efforts aimed at increasing the balances in existing clients’ deposit accounts.
Our in-market relationships continue to grow; however, deposit balances associated with those relationships will fluctuate. We expect to establish new client relationships and continue marketing efforts aimed at increasing the balances in existing clients’ deposit accounts.
Income Taxes Income tax expense was $11.4 million for the year ended December 31, 2022, compared to $11.3 million for the year ended December 31, 2021. The income tax expense included a $338,000 net benefit from tax credit investments.
Income Taxes Income tax expense was $10.1 million for the year ended December 31, 2023, compared to $11.4 million for the year ended December 31, 2022. The income tax expense included a $1.2 million and $635,000 net benefit from tax credit investments in 2023 and 2022, respectively.
The large increase in wholesale deposits is primarily driven by a shift from FHLB advances to wholesale deposits to manage interest rate risk and liquidity by utilizing the most efficient and cost-effective source of wholesale funds to match-fund our fixed-rate loan portfolio. Additionally, certificate of deposit accounts saw an increase primarily due to an increase in interest rates.
The large increase in wholesale deposits is primarily driven by a shift from FHLB advances to wholesale deposits to manage interest rate risk and liquidity by utilizing the most efficient and cost-effective source of wholesale funds to match-fund our fixed-rate loan portfolio. In addition, certificates of deposit and money market accounts increased by $133.4 million and $12.7 million, respectively.
A pre-tax unrealized gain of $602,000 was recognized in other comprehensive income for the year ended December 31, 2022 and there was no ineffective portion of these hedges. No pre-tax unrealized gain or loss was recognized in other comprehensive income for the years ended December 31, 2021 and 2020.
A pre-tax unrealized loss of $3.5 million was recognized in other comprehensive income for the year ended December 31, 2023, while a pre-tax unrealized gain of $8.5 million and $3.6 million were recognized in other comprehensive income for the years ended December 31, 2022 and 2021, respectively, and there were no ineffective portion of these hedges.
Management believes the investment in the Corporation’s C&I product lines has positioned the Corporation for strong and sustainable growth in 2023 and beyond.
The Corporation experienced significant C&I loan growth in 2023, due to growth across products and geographies. Management believes the investment in the Corporation’s C&I product lines has positioned the Corporation for strong and sustainable growth in 2024 and beyond.
The Bank originates a small amount of consumer loans consisting of home equity, first and second mortgages, and other personal loans for professional and executive clients of the Bank. Asset Quality Non-accrual loans and leases decreased $2.7 million, or 42.5%, to $3.7 million at December 31, 2022 compared to $6.4 million at December 31, 2021.
The Bank originates a small amount of consumer loans consisting of home equity, first and second mortgages, and other personal loans for professional and executive clients of the Bank. 52 Table of Contents Asset Quality Non-performing loans and leases increased $16.9 million, or 462.9%, to $20.6 million at December 31, 2023 compared to $3.7 million at December 31, 2022.
The allowance for loan and lease losses was 0.99% of total loans as of December 31, 2022, compared to 1.09% as of December 31, 2021. • Period-end in-market deposits at December 31, 2022 increased $37.7 million, or 2.0%, to $1.966 billion from $1.928 billion as of December 31, 2021.
The allowance for credit losses was 1.16% of total loans as of December 31, 2023, compared to 0.99% as of December 31, 2022. • Period-end in-market deposits at December 31, 2023 increased $373.1 million, or 19.0%, to $2.339 billion from $1.966 billion as of December 31, 2022.
Private wealth management service 35 Table of Contents fees increased $97,000, or 0.90%, for the year ended December 31, 2022, compared to the year ended December 31, 2021. The detailed financial discussion that follows focuses on 2022 results compared to 2021.
Private wealth management service fees increased $544,000, or 5.00%, for the year ended December 31, 2023, compared to the year ended December 31, 2022. The detailed financial discussion that follows focuses on 2023 results compared to 2022.
During the year ended December 31, 2022, we recorded net recoveries on impaired loans and leases of approximately $3.8 million, which included $979,000 of charge-offs and $4.7 million of recoveries.
During the year ended December 31, 2022, we recorded net recoveries on non-performing loans and leases of approximately $3.8 million, which included $979,000 of charge-offs and $4.7 million of recoveries. The Corporation recognized $8.2 million provision expense for the year ended December 31, 2023, compared to $3.9 million provision benefit for the year ended December 31, 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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The committee meets regularly to review the sensitivity of the Bank’s assets and liabilities to changes in interest rates, liquidity needs and sources, and pricing and funding strategies. The primary technique we use to measure interest rate risk is simulation of earnings.
The committee meets regularly to review the sensitivity of the Bank’s assets and liabilities to changes in interest rates, liquidity needs and sources, and pricing and funding strategies. 62 Table of Contents The primary technique we use to measure interest rate risk is simulation of earnings.
Impact on Net Interest Income as of December 31, Instantaneous Rate Change in Basis Points 2022 2021 Down 300 (9.90) % N/A Down 200 (0.88) N/A Down 100 0.79 2.48 No Change — — Up 100 2.26 0.77 Up 200 4.48 5.64 Up 300 6.65 10.67 We manage the structure of interest-earning assets and interest-bearing liabilities by adjusting their mix, yield, maturity and/or repricing characteristics based on market conditions.
Impact on Net Interest Income as of December 31, Instantaneous Rate Change in Basis Points 2023 2022 Down 300 (0.20) % (9.90) % Down 200 1.54 (0.88) Down 100 1.92 0.79 No Change — — Up 100 2.11 2.26 Up 200 2.24 4.48 Up 300 2.36 6.65 We manage the structure of interest-earning assets and interest-bearing liabilities by adjusting their mix, yield, maturity and/or repricing characteristics based on market conditions.
Currently, we do not employ any derivatives to assist in managing our interest rate risk exposure; however, management has the authorization, as permitted within applicable approved policies, and ability to utilize such instruments should they be appropriate to manage interest rate exposure.
Currently, we do not employ any derivatives to assist in managing our interest rate risk exposure; however, management has the authorization, as permitted within applicable approved policies, and ability to utilize such instruments should they be appropriate to manage interest rate exposure. We maintained our historically neutral balance sheet throughout 2023 and believe we ended the year appropriately positioned.
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We maintained our historically neutral balance sheet throughout 2022 and believe we ended the year appropriately positioned for net interest income to benefit modestly from additional rate increases in 2023. 65 Table of Contents

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