10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2020

OR

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

Commission file number 001-34095

FIRST BUSINESS FINANCIAL SERVICES, INC.

(Exact name of registrant as specified in its charter)

Wisconsin	39-1576570
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

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

(608) 238-8008

Registrant’s telephone number, including area code

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	FBIZ	The Nasdaq Stock Market LLC

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

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

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

Large accelerated filer ¨ Accelerated filer þ Non-accelerated filer ¨ Smaller reporting company ☑ Emerging growth company ☐

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

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

The number of shares outstanding of the registrant’s sole class of common stock, par value $0.01 per share, on July 19, 2020 was 8,529,006 shares.

FIRST BUSINESS FINANCIAL SERVICES, INC.

INDEX — FORM 10-Q

PART I. Financial Information	1
Item 1. Financial Statements	1
Consolidated Balance Sheets (Unaudited)	1
Consolidated Statements of Income (Unaudited)	2
Consolidated Statements of Comprehensive Income (Unaudited)	4
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)	5
Consolidated Statements of Cash Flows (Unaudited)	6
Notes to Unaudited Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	38
Item 3. Quantitative and Qualitative Disclosures about Market Risk	63
Item 4. Controls and Procedures	63
PART II. Other Information	63
Item 1. Legal Proceedings	63
Item 1A. Risk Factors	63
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	64
Item 3. Defaults Upon Senior Securities	64
Item 4. Mine Safety Disclosures	64
Item 5. Other Information	64
Item 6. Exhibits	64
Signatures	64

PART I. Financial Information

Item 1. Financial Statements

First Business Financial Services, Inc.

Consolidated Balance Sheets

		June 30, 2020			December 31, 2019
		(Unaudited)
	(In Thousands, Except Share Data)
Assets
Cash and due from banks		$	14,552		$	16,107
Short-term investments		27,839			50,995
Cash and cash equivalents		42,391			67,102
Securities available-for-sale, at fair value		171,680			173,133
Securities held-to-maturity, at amortized cost		29,826			32,700
Loans held for sale		13,672			5,205
Loans and leases receivable, net of allowance for loan and lease losses of $27,464 and $19,520, respectively		2,029,399			1,695,115
Premises and equipment, net		2,266			2,557
Foreclosed properties		1,389			2,919
Right-of-use assets		6,272			6,906
Bank-owned life insurance		51,433			42,761
Federal Home Loan Bank stock, at cost		13,470			7,953
Goodwill and other intangible assets		11,925			11,922
Accrued interest receivable and other assets		95,091			48,506
Total assets		$	2,468,814		$	2,096,779
Liabilities and Stockholders’ Equity
Deposits		$	1,710,375		$	1,530,379
Federal Home Loan Bank advances and other borrowings		465,007			319,382
Junior subordinated notes		10,054			10,047
Lease liabilities		6,877			7,541
Accrued interest payable and other liabilities		78,939			35,274
Total liabilities		2,271,252			1,902,623
Stockholders’ equity:
Preferred stock, $0.01 par value, 2,500,000 shares authorized, none issued or outstanding		—			—
Common stock, $0.01 par value, 25,000,000 shares authorized, 9,231,761 and 9,162,720 shares issued, 8,575,134 and 8,566,044 shares outstanding at June 30, 2020 and December 31, 2019, respectively		92			92
Additional paid-in capital		82,121			81,188
Retained earnings		132,882			129,105
Accumulated other comprehensive loss		(1,186		)	(1,348		)
Treasury stock, 656,627 and 596,676 shares at June 30, 2020 and December 31, 2019, respectively, at cost		(16,347		)	(14,881		)
Total stockholders’ equity		197,562			194,156
Total liabilities and stockholders’ equity		$	2,468,814		$	2,096,779

See accompanying Notes to Unaudited Consolidated Financial Statements.

1

First Business Financial Services, Inc.

Consolidated Statements of Income (Unaudited)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2020			2019			2020			2019
	(In Thousands, Except Per Share Data)
Interest income
Loans and leases	$	21,548		$	23,904		$	43,397		$	48,111
Securities	1,070			1,175			2,258			2,270
Short-term investments	143			230			477			608
Total interest income	22,761			25,309			46,132			50,989
Interest expense
Deposits	1,924			6,258			6,040			12,054
Federal Home Loan Bank advances and other borrowings	1,672			1,922			3,600			3,777
Junior subordinated notes	277			277			555			552
Total interest expense	3,873			8,457			10,195			16,383
Net interest income	18,888			16,852			35,937			34,606
Provision for loan and lease losses	5,469			(784		)	8,651			(736		)
Net interest income after provision for loan and lease losses	13,419			17,636			27,286			35,342
Non-interest income
Private wealth management service fees	2,124			2,138			4,235			4,065
Gain on sale of Small Business Administration loans	574			297			839			539
Service charges on deposits	829			743			1,647			1,520
Loan fees	451			464			936			877
Increase in cash surrender value of bank-owned life insurance	377			297			672			589
Net loss on sale of securities	—			(1		)	(4		)	(1		)
Commercial loan swap fees	1,655			1,051			3,336			1,523
Other non-interest income	309			816			1,072			1,331
Total non-interest income	6,319			5,805			12,733			10,443
Non-interest expense
Compensation	10,796			10,503			21,848			20,667
Occupancy	554			559			1,126			1,149
Professional fees	859			784			1,678			1,994
Data processing	710			689			1,386			1,269
Marketing	352			581			813			1,063
Equipment	304			272			595			661
Computer software	966			827			1,856			1,626
FDIC insurance	239			302			448			595
Collateral liquidation costs (recovery)	115			89			236			(1		)
Net loss (gain) on foreclosed properties	348			(21		)	450			(21		)
Tax credit investment impairment	1,841			2,088			1,954			4,102
SBA recourse (benefit) provision	(30		)	113			(5		)	594
Loss on early extinguishment of debt	744			—			744			—
Other non-interest expense	545			678			1,359			1,508
Total non-interest expense	18,343			17,464			34,488			35,206
Income before income tax benefit	1,395			5,977			5,531			10,579
Income tax benefit	(1,928		)	(595		)	(1,070		)	(1,893		)
Net income	$	3,323		$	6,572		$	6,601		$	12,472
Earnings per common share
Basic	$	0.38		$	0.75		$	0.77		$	1.43

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Diluted	0.38	0.75	0.77	1.43
Dividends declared per share	0.165	0.15	0.33	0.30

See accompanying Notes to Unaudited Consolidated Financial Statements.

3

First Business Financial Services, Inc.

Consolidated Statements of Comprehensive Income (Unaudited)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2020			2019			2020			2019
	(In Thousands)
Net income	$	3,323		$	6,572		$	6,601		$	12,472
Other comprehensive income, before tax
Securities available-for-sale:
Unrealized securities (losses) gains arising during the period	(264		)	1,928			4,237			3,239
Reclassification adjustment for net loss realized in net income	—			1			4			1
Securities held-to-maturity:
Amortization of net unrealized losses transferred from available-for-sale	10			14			20			28
Interest rate swaps:
Unrealized losses on interest rate swaps arising during the period	(418		)	(1,514		)	(4,043		)	(2,464		)
Income tax benefit (expense)	171			(110		)	(56		)	(206		)
Total other comprehensive (loss) income	(501		)	319			162			598
Comprehensive income	$	2,822		$	6,891		$	6,763		$	13,070

See accompanying Notes to Unaudited Consolidated Financial Statements.

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First Business Financial Services, Inc.

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

	Common Shares Outstanding		Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total
	(In Thousands, Except Share Data)
Balance at January 1, 2019	8,785,480		$	91	$	79,623	$	110,310		$	(1,684	)	$	(7,633	)	$	180,707
Cumulative effect of adoption of ASC Topic 842	—		—		—		687			—			—			687
Net income	—		—		—		5,899			—			—			5,899
Other comprehensive income	—		—		—		—			279			—			279
Share-based compensation - restricted shares, net	49,730		—		318		—			—			—			318
Cash dividends ($0.15 per share)	—		—		—		(1,312		)	—			—			(1,312		)
Treasury stock purchased	(70,074	)	—		—		—			—			(1,478		)	(1,478		)
Balance at March 31, 2019	8,765,136		91		79,941		115,584			(1,405		)	(9,111		)	185,100
Net income	—		—		—		6,572			—			—			6,572
Other comprehensive income	—		—		—		—			319			—			319
Share-based compensation - restricted shares, net	31,151		—		410		—			—			—			410
Cash dividends ($0.15 per share)	—		—		—		(1,315		)	—			—			(1,315		)
Treasury stock purchased	(96,831	)	—		—		—			—			(2,231		)	(2,231		)
Balance at June 30, 2019	8,699,456		$	91	$	80,351	$	120,841		$	(1,086	)	$	(11,342	)	$	188,855

	Common Shares Outstanding		Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total
	(In Thousands, Except Share Data)
Balance at January 1, 2020	8,566,044		$	92	$	81,188	$	129,105		$	(1,348	)	$	(14,881	)	$	194,156
Net income	—		—		—		3,278			—			—			3,278
Other comprehensive income	—		—		—		—			663			—			663
Share-based compensation - restricted shares, net	63,684		—		417		—			—			—			417
Cash dividends ($0.165 per share)	—		—		—		(1,410		)	—			—			(1,410		)
Treasury stock purchased	(58,594	)	—		—		—			—			(1,447		)	(1,447		)
Balance at March 31, 2020	8,571,134		92		81,605		130,973			(685		)	(16,328		)	195,657
Net income	—		—		—		3,323			—			—			3,323
Other comprehensive loss	—		—		—		—			(501		)	—			(501		)
Share-based compensation - restricted shares, net	5,357		—		516		—			—			—			516
Cash dividends ($0.165 per share)	—		—		—		(1,414		)	—			—			(1,414		)
Treasury stock purchased	(1,357	)	—		—		—			—			(19		)	(19		)
Balance at June 30, 2020	8,575,134		$	92	$	82,121	$	132,882		$	(1,186	)	$	(16,347	)	$	197,562

See accompanying Notes to Unaudited Consolidated Financial Statements.

5

First Business Financial Services, Inc.

Consolidated Statements of Cash Flows (Unaudited)

	For the Six Months Ended June 30,
	2020			2019
	(In Thousands)
Operating activities
Net income	$	6,601		$	12,472
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes, net	(133		)	(1,245		)
Impairment of tax credit investments	1,954			4,102
Provision for loan and lease losses	8,651			(736		)
SBA recourse (benefit) provision	(5		)	594
Depreciation, amortization and accretion, net	1,637			1,437
Share-based compensation	933			728
Net loss on sale of securities	4			1
Increase in bank-owned life insurance policies	(672		)	(589		)
Origination of loans for sale	(39,931		)	(29,116		)
Sale of loans originated for sale	32,303			30,156
Gain on sale of SBA loans	(839		)	(539		)
Net loss (gain) on foreclosed properties, including impairment valuation	450			(21		)
Excess tax benefit from share-based compensation	(19		)	(11		)
Payments on operating leases	(775		)	(759		)
Payments received on operating leases	56			—
Net increase in accrued interest receivable and other assets	(50,951		)	(17,612		)
Net increase in accrued interest payable and other liabilities	42,042			12,435
Net cash provided by operating activities	1,306			11,297
Investing activities
Proceeds from maturities, redemptions, and paydowns of available-for-sale securities	22,457			12,480
Proceeds from maturities, redemptions, and paydowns of held-to-maturity securities	2,844			3,176
Proceeds from sale of available-for-sale securities	839			2,026
Purchases of available-for-sale securities	(17,753		)	(31,934		)
Proceeds from sale of foreclosed properties	1,160			—
Net increase in loans and leases	(343,016		)	(102,162		)
Investments in limited partnerships	—			(1,250		)
Returns of investments in limited partnerships	—			280
Investment in historic development entities	(259		)	(2,137		)
Distributions from historic development entities	30			—
Investment in Federal Home Loan Bank stock	(6,892		)	(2,020		)
Proceeds from the sale of Federal Home Loan Bank stock	1,375			2,540
Purchases of leasehold improvements and equipment, net	(141		)	(11		)
Purchases of bank-owned life insurance policies	(8,000		)	—
Net cash used in investing activities	(347,356		)	(119,012		)
Financing activities
Net increase in deposits	179,996			74,346
Proceeds from Federal Home Loan Bank advances	498,500			265,000
Repayment of Federal Home Loan Bank advances	(383,243		)	(266,000		)
Loss on early extinguishment of debt	744			—
Proceeds from the Federal Reserve Paycheck Protection Program Lending Facility	29,605			—
Net increase in long-term borrowed funds	27			35
Cash dividends paid	(2,824		)	(2,628		)
Purchase of treasury stock	(1,466		)	(3,709		)
Net cash provided by financing activities	321,339			67,044
Net decrease in cash and cash equivalents	(24,711		)	(40,671		)
Cash and cash equivalents at the beginning of the period	67,102			86,546
Cash and cash equivalents at the end of the period	$	42,391		$	45,875
Supplementary cash flow information
Cash paid during the period for:
Interest paid on deposits and borrowings	$	11,064		$	15,744
Income taxes paid	1,356			1,308
Non-cash investing and financing activities:
Transfer from loans and leases to foreclosed properties	80			93

See accompany Notes to Unaudited Consolidated Financial Statements

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Notes to Unaudited Consolidated Financial Statements

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

Nature of Operations

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

Basis of Presentation

The accompanying unaudited Consolidated Financial Statements were prepared in accordance with GAAP and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Corporation’s Consolidated Financial Statements and footnotes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2019. The unaudited Consolidated Financial Statements include the accounts of the Corporation and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. In accordance with the provisions of Accounting Standards Codification (“ASC”) Topic 810, the Corporation’s ownership interest in FBFS Statutory Trust II (“Trust II”) has not been consolidated into the financial statements.

Management of the Corporation is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Material estimates that could significantly change in the near-term include the value of securities and interest rate swaps, level of the allowance for loan and lease losses, lease residuals, property under operating leases, goodwill, level of the Small Business Administration (“SBA”) recourse reserve, and income taxes. The results of operations for the three and six months ended June 30, 2020, are not necessarily indicative of results that may be expected for any other interim period or the entire fiscal year ending December 31, 2020. Certain amounts in prior periods may have been reclassified to conform to the current presentation. Subsequent events have been evaluated through the date of the issuance of the unaudited Consolidated Financial Statements. No significant subsequent events have occurred through this date requiring adjustment to the financial statements or disclosures.

The Corporation has not changed its significant accounting and reporting policies from those disclosed in the Corporation’s Form 10-K for the year ended December 31, 2019.

Recent Accounting Pronouncements

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

7

standard. Management has gathered all necessary data and reviewed potential methods to calculate the expected credit losses. Management is currently calculating sample expected loss computations and developing the allowance methodology and assumptions that will be used under the new standard. Management will continue to progress on its implementation project plan and improve the Corporation’s approach throughout the deferral period.

Note 2 — Significant Events

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

The full impact of COVID-19 is unknown and rapidly evolving. It has caused substantial disruption in international and U.S. economies, markets, and employment. The outbreak is having a significant adverse impact on certain industries the Corporation serves, including retail, hospitality, entertainment, and restaurants and food services. As of June 30, 2020, the Corporation’s aggregate outstanding exposure in these segments was $185.1 million, or 10.7% of the Corporation’s gross loans and leases. Based on management’s current assessment of the increased inherent risk in the loan portfolio, the allowance for loan and leases losses increased $7.9 million, or 40.7%, compared to December 31, 2019. The increase in the allowance for loan and lease losses was in large part due to an increase in several qualitative factors. Most notably, a $4.3 million increase was due to the economic conditions caused by the pandemic, including the increase in the unemployment rate, and an additional $953,000 stemmed from the other qualitative factors, such as management’s ongoing review and grading of the loan and lease portfolios, consideration of delinquency experience, and the level of loans and leases subject to more frequent review by management. Because of the significant uncertainties related to the ultimate duration of the COVID-19 pandemic and its effects on clients and prospects, and on the national and local economy as a whole, there can be no assurances as to how the crisis may ultimately affect the Corporation’s loan portfolio.

The Corporation provided loan modifications up to six months to certain borrowers impacted by COVID-19 who were current in their payments at the inception of the Corporation’s loan modification program. As of June 30, 2020, the Corporation had processed 448 deferral requests, representing $323.2 million in total loans outstanding. Loan deferrals of six months accounted for 60.2% of the total $323.2 million in deferral requests and the remaining balance were primarily for three months. For loans subject to the program, each borrower is required to resume making regularly scheduled loan payment at the end of the modification period and the deferred amounts will be moved to the end of the loan term. The loan will not be reported as past due during the deferral period. 

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act is a $2 trillion stimulus package to provide relief to U.S. businesses and consumers struggling as a result of the pandemic. A provision in the CARES Act includes a $349 billion fund for the creation of the Paycheck Protection Program (“PPP”) through the Small Business Administration (“SBA”) and Treasury Department. On April 24, 2020, the Paycheck Protection Program and Health Care Enhancement Act was signed into law, adding an additional $320 billion of funding to the PPP. The PPP is intended to provide loans to small businesses to pay their employees, rent, mortgage interest, and utilities. The loans may be forgiven conditioned upon the client providing payroll documentation evidencing their compliant use of funds and otherwise complying with the terms of the program. The Corporation began accepting and processing applications for loans under the PPP on April 3, 2020. As of June 30, 2020, the Corporation had processed over 700 applications from existing and new clients, disbursed $327.9 million in funds, and received processing fee income from the SBA of $8.7 million. The processing fee income is deferred and amortized over the contractual life of the loan, or accelerated at forgiveness, as an adjustment of yield using the interest method. During the three months ended June 30, 2020, $859,000 was recognized in loans and leases interest income in the unaudited Consolidated Statements of Income. The SBA provides a guaranty to the lender of 100% of principal and interest, unless the lender violated an obligation under the agreement. As loan losses are expected to be immaterial, if any at all, due to the guaranty, management excluded the PPP loans from the allowance for loan and lease losses calculation. Management funded these short-term loans through a combination of excess cash held at the Federal Reserve and from an increase in in-market deposits.

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Note 3 — Earnings per Common Share

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

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2020		2019		2020		2019
	(Dollars in Thousands, Except Share Data)
Basic earnings per common share
Net income	$	3,323	$	6,572	$	6,601	$	12,472
Less: earnings allocated to participating securities	93		151		173		239
Basic earnings allocated to common stockholders	$	3,230	$	6,421	$	6,428	$	12,233
Weighted-average common shares outstanding, excluding participating securities	8,392,197		8,569,581		8,379,696		8,584,444
Basic earnings per common share	$	0.38	$	0.75	$	0.77	$	1.43
Diluted earnings per common share
Earnings allocated to common stockholders, diluted	$	3,230	$	6,421	$	6,428	$	12,233
Weighted-average diluted common shares outstanding, excluding participating securities	8,392,197		8,569,581		8,379,696		8,584,444
Diluted earnings per common share	$	0.38	$	0.75	$	0.77	$	1.43

Note 4 — Share-Based Compensation

The Corporation adopted the 2019 Equity Incentive Plan (the “Plan”) during the quarter ended June 30, 2019. The Plan is administered by the Compensation Committee of the Board of Directors of the Corporation and provides for the grant of equity ownership opportunities through incentive stock options and nonqualified stock options, restricted stock, restricted stock units, dividend equivalent units, and any other type of award permitted by the Plan. As of June 30, 2020, 147,489 shares were available for future grants under the Plan. Shares covered by awards that expire, terminate, or lapse will again be available for the grant of awards under the Plan. The Corporation may issue new shares and shares from its treasury stock for shares delivered under the Plan.

Restricted Stock

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

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

Restricted stock activity for the year ended December 31, 2019 and the six months ended June 30, 2020 was as follows:

	Number of Restricted Shares/Units		Weighted Average Grant-Date Fair Value
Nonvested balance as of January 1, 2019	131,621		$	21.02
Granted	95,265		23.64
Vested	(48,207	)	20.62
Forfeited	(1,744	)	23.67
Nonvested balance as of December 31, 2019	176,935		22.51
Granted (1)	75,345		26.10
Vested	(18,197	)	22.66
Forfeited	(6,304	)	22.14
Nonvested balance as of June 30, 2020	227,779		$	23.98

(1) The number of restricted shares/units shown includes the shares that would be granted if the target level of performance is achieved related to the performance based restricted stock units. The number of shares actually issued may vary.

As of June 30, 2020, the Corporation had $4.3 million of unvested compensation expense, which the Corporation expects to recognize over a weighted-average period of approximately 2.50 years.

Share-based compensation expense related to restricted stock included in the unaudited Consolidated Statements of Income was as follows:

9

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2020		2019		2020		2019
	(In Thousands)
Share-based compensation expense	$	516	$	410	$	933	$	728

Note 5 — Securities

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

	As of June 30, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Available-for-sale:
U.S. government agency securities - government-sponsored enterprises	$	22,023	$	15	$	(68	)	$	21,970
Municipal securities	11,081		390		—			11,471
Residential mortgage-backed securities - government issued	12,296		587		—			12,883
Residential mortgage-backed securities - government-sponsored enterprises	101,005		3,084		—			104,089
Commercial mortgage-backed securities - government issued	6,161		205		—			6,366
Commercial mortgage-backed securities - government-sponsored enterprises	11,854		750		—			12,604
Other securities	2,205		92		—			2,297
	$	166,625	$	5,123	$	(68	)	$	171,680

	As of December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Available-for-sale:
U.S. government agency securities - government-sponsored enterprises	$	23,616	$	152	$	(10	)	$	23,758
Municipal securities	160		—		—			160
Residential mortgage-backed securities - government issued	16,119		234		(5		)	16,348
Residential mortgage-backed securities - government-sponsored enterprises	111,561		847		(406		)	112,002
Commercial mortgage-backed securities - government issued	6,705		45		(87		)	6,663
Commercial mortgage-backed securities - government-sponsored enterprises	11,953		23		(9		)	11,967
Other securities	2,205		30		—			2,235
	$	172,319	$	1,331	$	(517	)	$	173,133

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

10

	As of June 30, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Held-to-maturity:
Municipal securities	$	18,608	$	480	$	(26	)	$	19,062
Residential mortgage-backed securities - government issued	4,789		148		—			4,937
Residential mortgage-backed securities - government-sponsored enterprises	4,416		163		—			4,579
Commercial mortgage-backed securities - government-sponsored enterprises	2,013		296		—			2,309
	$	29,826	$	1,087	$	(26	)	$	30,887

	As of December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Held-to-maturity:
Municipal securities	$	19,727	$	335	$	(8	)	$	20,054
Residential mortgage-backed securities - government issued	5,776		19		(9		)	5,786
Residential mortgage-backed securities - government-sponsored enterprises	5,183		51		(23		)	5,211
Commercial mortgage-backed securities - government-sponsored enterprises	2,014		123		—			2,137
	$	32,700	$	528	$	(40	)	$	33,188

U.S. government agency securities - government-sponsored enterprises represent securities issued by the Federal National Mortgage Association (“FNMA”) and the SBA. Municipal securities include securities issued by various municipalities located primarily within Wisconsin and are primarily general obligation bonds that are tax-exempt in nature. Residential and commercial mortgage-backed securities - government issued represent securities guaranteed by the Government National Mortgage Association. Residential and commercial mortgage-backed securities - government-sponsored enterprises include securities guaranteed by the Federal Home Loan Mortgage Corporation, FNMA, and the FHLB. Other securities represent certificates of deposit of insured banks and savings institutions with an original maturity greater than three months. There were no sales of available-for-sale securities that occurred during the three months ended June 30, 2020 and one sale that occurred during the six months ended June 30, 2020. There were nine sales of available-for-sale securities that occurred during the three and six months ended June 30, 2019.

At June 30, 2020 and December 31, 2019, securities with a fair value of $182.0 million and $30.3 million, respectively, were pledged to secure various obligations, including interest rate swap contracts, outstanding FHLB advances, additional FHLB availability, the Federal Reserve Discount Window, and municipal deposits. At June 30, 2020, pledged securities with a fair value of $106.9 million were unencumbered. No pledged securities were unencumbered as of December 31, 2019.

The amortized cost and fair value of securities by contractual maturity at June 30, 2020 are shown below. Actual maturities may differ from contractual maturities because issuers have the right to call or prepay certain obligations with or without call or prepayment penalties.

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	Available-for-Sale				Held-to-Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In Thousands)
Due in one year or less	$	1,000	$	1,003	$	2,556	$	2,578
Due in one year through five years	8,650		8,969		12,346		12,621
Due in five through ten years	35,048		36,655		11,283		11,904
Due in over ten years	121,927		125,053		3,641		3,784
	$	166,625	$	171,680	$	29,826	$	30,887

The tables below show the Corporation’s gross unrealized losses and fair value of available-for-sale investments aggregated by investment category and length of time that individual investments were in a continuous loss position at June 30, 2020 and December 31, 2019. At June 30, 2020, the Corporation held six available-for-sale securities that were in an unrealized loss position. Such securities have not experienced credit rating downgrades; however, they have generally declined in value due to the current interest rate environment. At June 30, 2020, the Corporation held zero available-for-sale securities that had been in a continuous unrealized loss position for twelve months or greater.

The Corporation also has not specifically identified available-for-sale securities in a loss position that it intends to sell in the near term and does not believe that it will be required to sell any such securities. The Corporation reviews its securities on a quarterly basis to monitor its exposure to other-than-temporary impairment. Consideration is given to such factors as the length of time and extent to which the security has been in an unrealized loss position, changes in security ratings, and an evaluation of the present value of expected future cash flows, if necessary. Based on the Corporation’s evaluation, it is expected that the Corporation will recover the entire amortized cost basis of each security. Accordingly, no other-than-temporary impairment was recorded in the unaudited Consolidated Statements of Income for the three and six months ended June 30, 2020 and 2019.

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

	As of June 30, 2020
	Less than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
Available-for-sale:
U.S. government agency securities - government-sponsored enterprises	$	16,403	$	68	$	—	$	—	$	16,403	$	68

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	As of December 31, 2019
	Less than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
Available-for-sale:
U.S. government agency securities - government-sponsored enterprises	$	4,363	$	10	$	—	$	—	$	4,363	$	10
Residential mortgage-backed securities - government issued	4,619		5		—		—		4,619		5
Residential mortgage-backed securities - government-sponsored enterprises	36,972		253		11,304		153		48,276		406
Commercial mortgage-backed securities - government issued	—		—		4,727		87		4,727		87
Commercial mortgage-backed securities - government-sponsored enterprises	2,245		4		1,047		5		3,292		9
	$	48,199	$	272	$	17,078	$	245	$	65,277	$	517

The tables below show the Corporation’s gross unrealized losses and fair value of held-to-maturity investments, aggregated by investment category and length of time that individual investments were in a continuous loss position at June 30, 2020 and December 31, 2019. At June 30, 2020, the Corporation held two held-to-maturity securities that were in an unrealized loss position. Such securities have not experienced credit rating downgrades; however, they have generally declined in value due to the current interest rate environment. There were no held-to-maturity securities that had been in a continuous loss position for twelve months or greater as of June 30, 2020. It is expected that the Corporation will recover the entire amortized cost basis of each held-to-maturity security based upon an evaluation of aforementioned factors. Accordingly, no other-than-temporary impairment was recorded in the unaudited Consolidated Statements of Income for the three and six months ended June 30, 2020 and 2019.

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

	As of June 30, 2020
	Less than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
Held-to-maturity:
Municipal securities	$	479	$	26	$	—	$	—	$	479	$	26

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	As of December 31, 2019
	Less than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
Held-to-maturity:
Municipal securities	$	499	$	8	$	—	$	—	$	499	$	8
Residential mortgage-backed securities - government issued	—		—		1,887		9		1,887		9
Residential mortgage-backed securities - government-sponsored enterprises	1,364		5		2,144		18		3,508		23
	$	1,863	$	13	$	4,031	$	27	$	5,894	$	40

Note 6 — Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses

Loan and lease receivables consist of the following:

	June 30, 2020		December 31, 2019
	(In Thousands)
Commercial real estate:
Commercial real estate — owner occupied	$	229,994	$	226,614
Commercial real estate — non-owner occupied	533,211		516,652
Land development	44,299		51,097
Construction	133,375		109,057
Multi-family	244,496		217,322
1-4 family	36,823		33,359
Total commercial real estate	1,222,198		1,154,101
Commercial and industrial	781,239		503,402
Direct financing leases, net	25,525		28,203
Consumer and other:
Home equity and second mortgages	6,706		7,006
Other	29,737		22,664
Total consumer and other	36,443		29,670
Total gross loans and leases receivable	2,065,405		1,715,376
Less:
Allowance for loan and lease losses	27,464		19,520
Deferred loan fees	8,542		741
Loans and leases receivable, net	$	2,029,399	$	1,695,115

14

The total amount of the Corporation’s ownership of SBA loans comprised of the following:

	June 30, 2020		December 31, 2019
	(In Thousands)
SBA 7(a) loans	$	40,815	$	40,402
SBA 504 loans	23,479		20,592
SBA Express loans and lines of credit	1,549		1,781
SBA PPP loans	327,932		—
Total SBA loans	$	393,775	$	62,775

As of June 30, 2020 and December 31, 2019, $9.7 million and $12.1 million of SBA loans were considered impaired, respectively.

Loans transferred to third parties consist of the guaranteed portions of SBA 7(a) loans which the Corporation sold in the secondary market and participation interests in other, non-SBA originated loans. The total principal amount of the guaranteed portions of SBA 7(a) loans sold during the three months ended June 30, 2020, and 2019, was $6.5 million and $3.3 million, respectively. The total principal amount of the guaranteed portions of SBA 7(a) loans sold during the six months ended June 30, 2020, and 2019, was $9.2 million and $5.6 million, respectively. Each of the transfers of these financial assets met the qualifications for sale accounting, and therefore all of the loans transferred during the three and six months ended June 30, 2020, and 2019, have been derecognized in the unaudited Consolidated Financial Statements. The guaranteed portions of SBA loans were transferred at their fair value and the related gain was recognized upon the transfer as non-interest income in the unaudited Consolidated Financial Statements. The total outstanding balance of sold SBA loans at June 30, 2020, and December 31, 2019, was $69.9 million and $73.8 million, respectively.

The total principal amount of transferred participation interests in other, non-SBA originated loans during the three months ended June 30, 2020, and 2019, was $10.3 million and $17.2 million, respectively. The total principal amount of transferred participation interests in other, non-SBA originated loans during the six months ended June 30, 2020, and 2019, was $22.2 million and $34.4 million, respectively, all of which were treated as sales and derecognized under the applicable accounting guidance at the time of transfer. No gain or loss was recognized on participation interests in other, non-SBA originated loans as they were transferred at or near the date of loan origination and the payments received for servicing the portion of the loans participated represents adequate compensation. The total outstanding balance of these transferred loans at June 30, 2020, and December 31, 2019, was $149.4 million and $142.8 million, respectively. As of June 30, 2020, and December 31, 2019, the total amount of the Corporation’s partial ownership of these transferred loans on the unaudited Consolidated Balance Sheets was $266.1 million and $244.6 million, respectively. No loans in this participation portfolio were considered impaired as of June 30, 2020, and December 31, 2019. The Corporation does not share in the participant’s portion of any potential charge-offs. The total amount of loan participations purchased on the unaudited Consolidated Balance Sheets as of June 30, 2020, and December 31, 2019, was $452,000 and $492,000, respectively.

15

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

	June 30, 2020
	Category
	I			II			III			IV			Total
	(Dollars in Thousands)
Commercial real estate:
Commercial real estate — owner occupied	$	170,546		$	26,515		$	25,430		$	7,503		$	229,994
Commercial real estate — non-owner occupied	458,069			55,494			19,648			—			533,211
Land development	42,922			328			—			1,049			44,299
Construction	122,392			10,983			—			—			133,375
Multi-family	220,688			23,808			—			—			244,496
1-4 family	32,687			1,682			2,072			382			36,823
Total commercial real estate	1,047,304			118,810			47,150			8,934			1,222,198
Commercial and industrial	658,377			41,156			66,672			15,034			781,239
Direct financing leases, net	18,661			214			6,601			49			25,525
Consumer and other:
Home equity and second mortgages	5,969			602			135			—			6,706
Other	29,425			185			—			127			29,737
Total consumer and other	35,394			787			135			127			36,443
Total gross loans and leases receivable	$	1,759,736		$	160,967		$	120,558		$	24,144		$	2,065,405
Category as a % of total portfolio	85.20		%	7.79		%	5.84		%	1.17		%	100.00		%

	December 31, 2019
	Category
	I			II			III			IV			Total
	(Dollars in Thousands)
Commercial real estate:
Commercial real estate — owner occupied	$	187,728		$	18,455		$	16,399		$	4,032		$	226,614
Commercial real estate — non-owner occupied	459,821			55,524			1,307			—			516,652
Land development	49,132			439			—			1,526			51,097
Construction	108,959			—			98			—			109,057
Multi-family	205,750			11,572			—			—			217,322
1-4 family	29,284			1,843			1,759			473			33,359
Total commercial real estate	1,040,674			87,833			19,563			6,031			1,154,101
Commercial and industrial	398,445			34,478			55,904			14,575			503,402
Direct financing leases, net	21,282			579			6,342			—			28,203
Consumer and other:
Home equity and second mortgages	6,307			610			89			—			7,006
Other	22,517			—			—			147			22,664
Total consumer and other	28,824			610			89			147			29,670
Total gross loans and leases receivable	$	1,489,225		$	123,500		$	81,898		$	20,753		$	1,715,376
Category as a % of total portfolio	86.82		%	7.20		%	4.77		%	1.21		%	100.00		%

Each credit is evaluated for proper risk rating upon origination, at the time of each subsequent renewal, upon receipt and evaluation of updated financial information from the Corporation’s borrowers, or as other circumstances dictate. The Corporation primarily uses a nine grade risk rating system to monitor the ongoing credit quality of its loans and leases. The risk

16

rating grades follow a consistent definition and are then applied to specific loan types based on the nature of the loan. Each risk rating is subjective and, depending on the size and nature of the credit, subject to various levels of review and concurrence on the stated risk rating. In addition to its nine grade risk rating system, the Corporation groups loans into four loan and related risk categories which determine the level and nature of review by management.

Category I — Loans and leases in this category are performing in accordance with the terms of the contract and generally exhibit no immediate concerns regarding the security and viability of the underlying collateral, financial stability of the borrower, integrity or strength of the borrowers’ management team, or the industry in which the borrower operates. The Corporation monitors Category I loans and leases through payment performance, continued maintenance of its personal relationships with such borrowers, and continued review of such borrowers’ compliance with the terms of their respective agreements.

Category II — Loans and leases in this category are beginning to show signs of deterioration in one or more of the Corporation’s core underwriting criteria such as financial stability, management strength, industry trends, or collateral values. Management will place credits in this category to allow for proactive monitoring and resolution with the borrower to possibly mitigate the area of concern and prevent further deterioration or risk of loss to the Corporation. Category II loans are considered performing but are monitored frequently by the assigned business development officer and by asset quality review committees.

Category III — Loans and leases in this category are identified by management as warranting special attention. However, the balance in this category is not intended to represent the amount of adversely classified assets held by the Bank. Category III loans and leases generally exhibit undesirable characteristics, such as evidence of adverse financial trends and conditions, managerial problems, deteriorating economic conditions within the related industry, or evidence of adverse public filings and may exhibit collateral shortfall positions. Management continues to believe that it will collect all contractual principal and interest in accordance with the original terms of the contracts relating to the loans and leases in this category, and therefore Category III loans are considered performing with no specific reserves established for this category. Category III loans are monitored by management and asset quality review committees on a monthly basis.

Category IV — Loans and leases in this category are considered to be impaired. Impaired loans and leases, with the exception of performing troubled debt restructurings, have been placed on non-accrual as management has determined that it is unlikely that the Bank will receive the contractual principal and interest in accordance with the original terms of the agreement. Impaired loans are individually evaluated to assess the need for the establishment of specific reserves or charge-offs. When analyzing the adequacy of collateral, the Corporation obtains external appraisals at least annually for impaired loans and leases. External appraisals are obtained from the Corporation’s approved appraiser listing and are independently reviewed to monitor the quality of such appraisals. To the extent a collateral shortfall position is present, a specific reserve or charge-off will be recorded to reflect the magnitude of the impairment. Loans and leases in this category are monitored by management and asset quality review committees on a monthly basis.

The delinquency aging of the loan and lease portfolio by class of receivable was as follows:

17

	June 30, 2020
	30-59 Days Past Due			60-89 Days Past Due			Greater Than 90 Days Past Due			Total Past Due			Current			Total Loans and Leases
	(Dollars in Thousands)
Accruing loans and leases
Commercial real estate:
Owner occupied	$	—		$	—		$	—		$	—		$	222,491		$	222,491
Non-owner occupied	—			—			—			—			533,211			533,211
Land development	—			—			—			—			43,250			43,250
Construction	—			—			—			—			133,375			133,375
Multi-family	—			—			—			—			244,496			244,496
1-4 family	—			—			—			—			36,490			36,490
Commercial and industrial	5,965			1,320			—			7,285			758,920			766,205
Direct financing leases, net	—			—			—			—			25,476			25,476
Consumer and other:
Home equity and second mortgages	—			—			—			—			6,706			6,706
Other	—			—			—			—			29,610			29,610
Total	5,965			1,320			—			7,285			2,034,025			2,041,310
Non-accruing loans and leases
Commercial real estate:
Owner occupied	—			—			3,550			3,550			3,953			7,503
Non-owner occupied	—			—			—			—			—			—
Land development	—			—			—			—			1,049			1,049
Construction	—			—			—			—			—			—
Multi-family	—			—			—			—			—			—
1-4 family	—			—			333			333			—			333
Commercial and industrial	76			283			7,416			7,775			7,259			15,034
Direct financing leases, net	—			—			—			—			49			49
Consumer and other:
Home equity and second mortgages	—			—			—			—			—			—
Other	—			—			127			127			—			127
Total	76			283			11,426			11,785			12,310			24,095
Total loans and leases
Commercial real estate:
Owner occupied	—			—			3,550			3,550			226,444			229,994
Non-owner occupied	—			—			—			—			533,211			533,211
Land development	—			—			—			—			44,299			44,299
Construction	—			—			—			—			133,375			133,375
Multi-family	—			—			—			—			244,496			244,496
1-4 family	—			—			333			333			36,490			36,823
Commercial and industrial	6,041			1,603			7,416			15,060			766,179			781,239
Direct financing leases, net	—			—			—			—			25,525			25,525
Consumer and other:
Home equity and second mortgages	—			—			—			—			6,706			6,706
Other	—			—			127			127			29,610			29,737
Total	$	6,041		$	1,603		$	11,426		$	19,070		$	2,046,335		$	2,065,405
Percent of portfolio	0.29		%	0.08		%	0.55		%	0.92		%	99.08		%	100.00		%

18

	December 31, 2019
	30-59 Days Past Due			60-89 Days Past Due			Greater Than 90 Days Past Due			Total Past Due			Current			Total Loans and Leases
	(Dollars in Thousands)
Accruing loans and leases
Commercial real estate:
Owner occupied	$	—		$	—		$	—		$	—		$	222,582		$	222,582
Non-owner occupied	—			—			—			—			516,652			516,652
Land development	—			990			—			990			48,581			49,571
Construction	309			—			—			309			108,748			109,057
Multi-family	—			—			—			—			217,322			217,322
1-4 family	—			—			—			—			33,026			33,026
Commercial and industrial	2,707			52			—			2,759			486,068			488,827
Direct financing leases, net	—			—			—			—			28,203			28,203
Consumer and other:
Home equity and second mortgages	—			—			—			—			7,006			7,006
Other	—			—			—			—			22,517			22,517
Total	3,016			1,042			—			4,058			1,690,705			1,694,763
Non-accruing loans and leases
Commercial real estate:
Owner occupied	—			—			342			342			3,690			4,032
Non-owner occupied	—			—			—			—			—			—
Land development	—			—			—			—			1,526			1,526
Construction	—			—			—			—			—			—
Multi-family	—			—			—			—			—			—
1-4 family	—			333			—			333			—			333
Commercial and industrial	4,368			2,717			3,123			10,208			4,367			14,575
Direct financing leases, net	—			—			—			—			—			—
Consumer and other:
Home equity and second mortgages	—			—			—			—			—			—
Other	—			—			147			147			—			147
Total	4,368			3,050			3,612			11,030			9,583			20,613
Total loans and leases
Commercial real estate:
Owner occupied	—			—			342			342			226,272			226,614
Non-owner occupied	—			—			—			—			516,652			516,652
Land development	—			990			—			990			50,107			51,097
Construction	309			—			—			309			108,748			109,057
Multi-family	—			—			—			—			217,322			217,322
1-4 family	—			333			—			333			33,026			33,359
Commercial and industrial	7,075			2,769			3,123			12,967			490,435			503,402
Direct financing leases, net	—			—			—			—			28,203			28,203
Consumer and other:
Home equity and second mortgages	—			—			—			—			7,006			7,006
Other	—			—			147			147			22,517			22,664
Total	$	7,384		$	4,092		$	3,612		$	15,088		$	1,700,288		$	1,715,376
Percent of portfolio	0.43		%	0.24		%	0.21		%	0.88		%	99.12		%	100.00		%

19

The Corporation’s total impaired assets consisted of the following:

	June 30, 2020		December 31, 2019
	(In Thousands)
Non-accrual loans and leases
Commercial real estate:
Commercial real estate — owner occupied	$	7,503	$	4,032
Commercial real estate — non-owner occupied	—		—
Land development	1,049		1,526
Construction	—		—
Multi-family	—		—
1-4 family	333		333
Total non-accrual commercial real estate	8,885		5,891
Commercial and industrial	15,034		14,575
Direct financing leases, net	49		—
Consumer and other:
Home equity and second mortgages	—		—
Other	127		147
Total non-accrual consumer and other loans	127		147
Total non-accrual loans and leases	24,095		20,613
Foreclosed properties, net	1,389		2,919
Total non-performing assets	25,484		23,532
Performing troubled debt restructurings	49		140
Total impaired assets	$	25,533	$	23,672

	June 30, 2020		December 31, 2019
Total non-accrual loans and leases to gross loans and leases	1.17	%	1.20	%
Total non-performing assets to total gross loans and leases plus foreclosed properties, net	1.23		1.37
Total non-performing assets to total assets	1.03		1.12
Allowance for loan and lease losses to gross loans and leases	1.33		1.14
Allowance for loan and lease losses to non-accrual loans and leases	113.98		94.70

As of June 30, 2020, and December 31, 2019, $16.3 million and $15.6 million of the non-accrual loans and leases were considered troubled debt restructurings, respectively. The Corporation has allocated $4.8 million and $2.7 million of specific reserves to troubled debt restructurings as of June 30, 2020 and December 31, 2019, respectively. There were no unfunded commitments associated with troubled debt restructured loans and leases as of June 30, 2020.

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

The following table provides the number of loans modified in a troubled debt restructuring and the pre- and post-modification recorded investment by class of receivable:

20

	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2020
	Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment
	(Dollars in Thousands)
Commercial real estate:
Commercial real estate — owner occupied	—	$	—	$	—	2	$	299	$	272
Commercial and industrial	1	4,986		4,986		3	6,007		5,756
Total	1	$	4,986	$	4,986	5	$	6,306	$	6,028

	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2019
	Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment
	(Dollars in Thousands)
Commercial and industrial	9	$	5,281	$	5,281	13	$	7,359	$	7,284

Restructured loan modifications may include payment schedule modifications, interest rate concessions, maturity date extensions, principal reduction, or some combination of these concessions. During the three and six months ended June 30, 2020, and 2019, the modification of terms primarily consisted of payment schedule modifications or principal reductions.

There were two commercial and industrial loans for a total of $2.7 million and four owner-occupied commercial real estate loans for a total of $3.8 million modified in troubled debt restructurings during the previous 12 months which subsequently defaulted during the three and six months ended June 30, 2020. There were two commercial and industrial loans modified in a troubled debt restructuring during the previous 12 months which subsequently defaulted during the three and six months ended June 30, 2019 in the amount of $2.8 million.

21

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

	As of and for the Six Months Ended June 30, 2020
	Recorded Investment(1)		Unpaid Principal Balance			Impairment Reserve		Average Recorded Investment(2)			Foregone Interest Income			Interest Income Recognized		Net Foregone Interest Income
	(In Thousands)
With no impairment reserve recorded:
Commercial real estate:
Owner occupied	$	3,856	$	3,856		$	—	$	4,577		$	86		$	72	$	14
Non-owner occupied	—		—			—		53			—			—		—
Land development	1,049		5,346			—		1,442			19			—		19
Construction	—		—			—		—			—			—		—
Multi-family	—		—			—		—			—			—		—
1-4 family	382		387			—		433			21			70		(49		)
Commercial and industrial	5,328		7,273			—		14,291			550			316		234
Direct financing leases, net	—		—			—		4			—			—		—
Consumer and other:
Home equity and second mortgages	—		—			—		—			—			—		—
Other	127		794			—		137			22			—		22
Total	10,742		17,656			—		20,937			698			458		240
With impairment reserve recorded:
Commercial real estate:
Owner occupied	3,647		5,034			3,052		1,469			201			—		201
Non-owner occupied	—		—			—		—			—			—		—
Land development	—		—		—	—		—		—	—		—	—		—
Construction	—		—		—	—		—		—	—		—	—		—
Multi-family	—		—			—		—			—			—		—
1-4 family	—		—			—		—			—			—		—
Commercial and industrial	9,706		11,154			2,847		1,437			213			—		213
Direct financing leases, net	49		49			25		4			2			—		2
Consumer and other:
Home equity and second mortgages	—		—			—		—			—			—		—
Other	—		—			—		—			—			—		—
Total	13,402		16,237			5,924		2,910			416			—		416
Total:
Commercial real estate:
Owner occupied	7,503		8,890			3,052		6,046			287			72		215
Non-owner occupied	—		—			—		53			—			—		—
Land development	1,049		5,346			—		1,442			19			—		19
Construction	—		—			—		—			—			—		—
Multi-family	—		—			—		—			—			—		—
1-4 family	382		387			—		433			21			70		(49		)
Commercial and industrial	15,034		18,427			2,847		15,728			763			316		447
Direct financing leases, net	49		49			25		8			2			—		2
Consumer and other:
Home equity and second mortgages	—		—			—		—			—			—		—
Other	127		794			—		137			22			—		22
Grand total	$	24,144	$	33,893		$	5,924	$	23,847		$	1,114		$	458	$	656

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

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

22

	As of and for the Year Ended December 31, 2019
	Recorded Investment(1)		Unpaid Principal Balance		Impairment Reserve		Average Recorded Investment(2)		Foregone Interest Income		Interest Income Recognized		Net Foregone Interest Income
	(In Thousands)
With no impairment reserve recorded:
Commercial real estate:
Owner occupied	$	387	$	387	$	—	$	3,285	$	64	$	355	$	(291	)
Non-owner occupied	—		—		—		58		1		—		1
Land development	1,526		5,823		—		1,843		52		6		46
Construction	—		—		—		—		—		—		—
Multi-family	—		—		—		—		—		—		—
1-4 family	473		478		—		356		19		46		(27		)
Commercial and industrial	4,779		6,549		—		14,479		1,073		379		694
Direct financing leases, net	—		—		—		—		—		—		—
Consumer and other:
Home equity and second mortgages	—		—		—		—		—		7		(7		)
Other	147		813		—		191		48		—		48
Total	7,312		14,050		—		20,212		1,257		793		464
With impairment reserve recorded:
Commercial real estate:
Owner occupied	3,645		5,004		1,082		1,511		414		—		414
Non-owner occupied	—		—		—		—		—		—		—
Land development	—		—		—		—		—		—		—
Construction	—		—		—		—		—		—		—
Multi-family	—		—		—		—		—		—		—
1-4 family	—		—		—		—		—		—		—
Commercial and industrial	9,796		11,179		2,283		2,367		1,022		—		1,022
Direct financing leases, net	—		—		—		—		—		—		—
Consumer and other:
Home equity and second mortgages	—		—		—		—		—		—		—
Other	—		—		—		—		—		—		—
Total	13,441		16,183		3,365		3,878		1,436		—		1,436
Total:
Commercial real estate:
Owner occupied	4,032		5,391		1,082		4,796		478		355		123
Non-owner occupied	—		—		—		58		1		—		1
Land development	1,526		5,823		—		1,843		52		6		46
Construction	—		—		—		—		—		—		—
Multi-family	—		—		—		—		—		—		—
1-4 family	473		478		—		356		19		46		(27		)
Commercial and industrial	14,575		17,728		2,283		16,846		2,095		379		1,716
Direct financing leases, net	—		—		—		—		—		—		—
Consumer and other:
Home equity and second mortgages	—		—		—		—		—		7		(7		)
Other	147		813		—		191		48		—		48
Grand total	$	20,753	$	30,233	$	3,365	$	24,090	$	2,693	$	793	$	1,900

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

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

23

The difference between the recorded investment of loans and leases and the unpaid principal balance of $9.7 million and $9.5 million as of June 30, 2020, and December 31, 2019, respectively, represents partial charge-offs of loans and leases resulting from losses due to the appraised value of the collateral securing the loans and leases being below the carrying values of the loans and leases. Impaired loans and leases also included $49,000 and $140,000 of loans as of June 30, 2020, and December 31, 2019, respectively, that were performing troubled debt restructurings, and although not on non-accrual, were reported as impaired due to the concession in terms. When a loan is placed on non-accrual, interest accrual is discontinued and previously accrued but uncollected interest is deducted from interest income. Cash payments collected on non-accrual loans are first applied to such loan’s principal. Foregone interest represents the interest that was contractually due on the loan but not received or recorded. To the extent the amount of principal on a non-accrual loan is fully collected and additional cash is received, the Corporation will recognize interest income.

To determine the level and composition of the allowance for loan and lease losses, the Corporation categorizes the portfolio into segments with similar risk characteristics. First, the Corporation evaluates loans and leases for potential impairment classification. The Corporation analyzes each loan and lease determined to be impaired on an individual basis to determine a specific reserve based upon the estimated value of the underlying collateral for collateral-dependent loans, or alternatively, the present value of expected cash flows. The Corporation applies historical trends from established risk factors to each category of loans and leases that has not been individually evaluated for the purpose of establishing the general portion of the allowance.

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

	As of and for the Three Months Ended June 30, 2020
	Commercial Real Estate			Commercial and Industrial			Consumer and Other			Total
	(In Thousands)
Beginning balance	$	12,597		$	9,322		$	829		$	22,748
Charge-offs	(27		)	(784		)	(6		)	(817		)
Recoveries	2			62			—			64
Net charge-offs	(25		)	(722		)	(6		)	(753		)
Provision for loan and lease losses	3,866			1,579			24			5,469
Ending balance	$	16,438		$	10,179		$	847		$	27,464

	As of and for the Three Months Ended June 30, 2019
	Commercial Real Estate			Commercial and Industrial			Consumer and Other			Total
	(In Thousands)
Beginning balance	$	11,205		$	8,485		$	759		$	20,449
Charge-offs	—			(13		)	(2		)	(15		)
Recoveries	72			72			25			169
Net recoveries	72			59			23			154
Provision for loan and lease losses	(8		)	(652		)	(124		)	(784		)
Ending balance	$	11,269		$	7,892		$	658		$	19,819

24

	As of and for the Six Months Ended June 30, 2020
	Commercial Real Estate			Commercial and Industrial			Consumer and Other			Total
	(In Thousands)
Beginning balance	$	10,852		$	8,078		$	590		$	19,520
Charge-offs	(27		)	(909		)	(12		)	(948		)
Recoveries	3			238			—			241
Net charge-offs	(24		)	(671		)	(12		)	(707		)
Provision for loan and lease losses	5,610			2,772			269			8,651
Ending balance	$	16,438		$	10,179		$	847		$	27,464

	As of and for the Six Months Ended June 30, 2019
	Commercial Real Estate			Commercial and Industrial			Consumer and Other			Total
	(In Thousands)
Beginning balance	$	11,662		$	8,079		$	684		$	20,425
Charge-offs	—			(61		)	(2		)	(63		)
Recoveries	73			92			28			193
Net recoveries	73			31			26			130
Provision for loan and lease losses	(466		)	(218		)	(52		)	(736		)
Ending balance	$	11,269		$	7,892		$	658		$	19,819

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

	As of June 30, 2020
	Commercial Real Estate		Commercial and Industrial		Consumer and Other		Total
	(In Thousands)
Allowance for loan and lease losses:
Collectively evaluated for impairment	$	13,386	$	7,307	$	847	$	21,540
Individually evaluated for impairment	3,052		2,872		—		5,924
Total	$	16,438	$	10,179	$	847	$	27,464
Loans and lease receivables:
Collectively evaluated for impairment	$	1,213,264	$	791,681	$	36,316	$	2,041,261
Individually evaluated for impairment	8,934		15,083		127		24,144
Total	$	1,222,198	$	806,764	$	36,443	$	2,065,405

25

	As of December 31, 2019
	Commercial Real Estate		Commercial and Industrial		Consumer and Other		Total
	(In Thousands)
Allowance for loan and lease losses:
Collectively evaluated for impairment	$	9,770	$	5,795	$	590	$	16,155
Individually evaluated for impairment	1,082		2,283		—		3,365
Total	$	10,852	$	8,078	$	590	$	19,520
Loans and lease receivables:
Collectively evaluated for impairment	$	1,148,070	$	517,030	$	29,523	$	1,694,623
Individually evaluated for impairment	6,031		14,575		147		20,753
Total	$	1,154,101	$	531,605	$	29,670	$	1,715,376

Note 7 — Leases

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

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

The components of total lease expense were as follows:

	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2020			2019		2020			2019
	(In Thousands)
Operating lease cost	$	372		$	391	$	745		$	781
Short-term lease cost	126			101		253			238
Variable lease cost	48			74		122			142
Less: sublease income	(28		)	—		(56		)	—
Total lease cost, net	$	518		$	566	$	1,064		$	1,161

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

	June 30, 2020		December 31, 2019
Weighted-average remaining lease term (in years)	5.87		6.56
Weighted-average discount rate	3.10	%	3.09	%

26

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

(In Thousands)
2020	$	767
2021	1,382
2022	1,373
2023	1,015
2024	756
Thereafter	2,307
Total undiscounted cash flows	7,600
Discount on cash flows	(723		)
Total lease liability	$	6,877

Note 8 — Other Assets

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

	June 30, 2020		December 31, 2019
	(In Thousands)
Accrued interest receivable	$	7,207	$	5,760
Net deferred tax asset	5,436		5,353
Investment in historic development entities	2,345		2,216
Investment in a community development entity	5,316		5,571
Investment in limited partnerships	4,973		4,476
Investment in Trust II	315		315
Fair value of interest rate swaps	58,808		18,346
Prepaid expenses	2,227		2,285
Other assets	8,464		4,184
Total accrued interest receivable and other assets	$	95,091	$	48,506

Note 9 — Deposits

The composition of deposits is shown below. Average balances represent year to date averages.

	June 30, 2020						December 31, 2019
	Balance		Average Balance		Average Rate		Balance		Average Balance		Average Rate
	(Dollars in Thousands)
Non-interest-bearing transaction accounts	$	433,760	$	365,771	—	%	$	293,573	$	275,495	—	%
Interest-bearing transaction accounts	413,214		320,188		0.59		273,909		222,244		1.53
Money market accounts	656,741		653,598		0.68		674,409		617,341		1.71
Certificates of deposit	116,901		128,791		2.14		137,012		156,048		2.47
Wholesale deposits	89,759		119,032		2.50		151,476		225,302		2.27
Total deposits	$	1,710,375	$	1,587,380	0.76		$	1,530,379	$	1,496,430	1.53

27

Note 10 — FHLB Advances, Other Borrowings and Junior Subordinated Notes

The composition of borrowed funds is shown below. Average balances represent year to date averages.

	June 30, 2020						December 31, 2019
	Balance		Weighted Average Balance		Weighted Average Rate		Balance		Weighted Average Balance		Weighted Average Rate
	(Dollars in Thousands)
Federal funds purchased	$	—	$	143	0.69	%	$	—	$	59	2.45	%
Federal Reserve PPPLF	29,605		10,410		0.35		—		—		—
FHLB advances	411,000		367,604		1.55		295,000		286,464		2.17
Other borrowings	675		675		8.09		675		675		8.11
Subordinated notes payable(1)	23,727		23,715		5.95		23,707		24,502		7.45
Junior subordinated notes	10,054		10,050		11.04		10,047		10,040		11.08
	$	475,061	$	412,597	2.01		$	329,429	$	321,740	2.87
Short-term borrowings	$	202,500					$	118,500
Long-term borrowings	272,561						210,929
	$	475,061					$	329,429

(1) Weighted average rate of subordinated notes payable reflects the accelerated amortization of subordinated debt issuance costs as a result of the early redemption of a subordinated note during the third quarter of 2019.

During the three months ended June 30, 2020, the Corporation prepaid $59.5 million of short-term FHLB advances that had a weighted average interest rate of 2.34%. The transaction was accounted for as an early debt extinguishment resulting in a pre-tax loss of $744,000 during the three months ended June 30, 2020.

As of June 30, 2020 and December 31, 2019, the Corporation was in compliance with its debt covenants under its third-party secured senior line of credit. Per the promissory note dated February 19, 2020, the Corporation pays a fee on this line of credit. During the six months ended June 30, 2020 and 2019, the Corporation incurred interest expense due to this fee of $7,000 and $6,000, respectively.

Note 11 — Commitments and Contingencies

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

The Corporation sells the guaranteed portions of SBA 7(a) loans, as well as participation interests in other, non-SBA originated, loans to third parties. The Corporation has a continuing involvement in each of the transferred lending arrangements by way of relationship management and servicing the loans, as well as being subject to normal and customary requirements of the SBA loan program and standard representations and warranties related to sold amounts. In the event of a loss resulting from default and a determination by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced by the Corporation, the SBA may require the Corporation to repurchase the loan, deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of the principal loss related to the deficiency from the Corporation. The Corporation must comply with applicable SBA regulations in order to maintain the guaranty. In addition, the Corporation retains the option to repurchase the sold guaranteed portion of an SBA loan if the loan defaults.

Management has assessed estimated losses inherent in the outstanding guaranteed portions of SBA loans sold in accordance with ASC 450, Contingencies, and determined a recourse reserve based on the probability of future losses for these loans to be $1.0 million at June 30, 2020, which is reported in accrued interest payable and other liabilities on the unaudited Consolidated Balance Sheets.

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

	As of and for the Three Months Ended June 30,						As of and for the Six Months Ended June 30,
	2020			2019			2020			2019
	(In Thousands)
Balance at the beginning of the period	$	1,086		$	3,276		$	1,345		$	2,956
SBA recourse (benefit) provision	(30		)	113			(5		)	594
Charge-offs, net	(49		)	(1,321		)	(333		)	(1,482		)
Balance at the end of the period	$	1,007		$	2,068		$	1,007		$	2,068

Note 12 — Fair Value Disclosures

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

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

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

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

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

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

	June 30, 2020
	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total
	(In Thousands)
Assets:
Securities available-for-sale:
U.S. government agency securities - government-sponsored enterprises	$	—	$	21,970	$	—	$	21,970
Municipal securities	—		11,471		—		11,471
Residential mortgage-backed securities - government issued	—		12,883		—		12,883
Residential mortgage-backed securities - government-sponsored enterprises	—		104,089		—		104,089
Commercial mortgage-backed securities - government issued	—		6,366		—		6,366
Commercial mortgage-backed securities - government-sponsored enterprises	—		12,604		—		12,604
Other securities	—		2,297		—		2,297
Interest rate swaps	—		58,808		—		58,808
Liabilities:
Interest rate swaps	—		65,390		—		65,390

	December 31, 2019
	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total
	(In Thousands)
Assets:
Securities available-for-sale:
U.S. government agency securities - government-sponsored enterprises	$	—	$	23,758	$	—	$	23,758
Municipal securities	—		160		—		160
Residential mortgage-backed securities - government issued	—		16,348		—		16,348
Residential mortgage-backed securities - government-sponsored enterprises	—		112,002		—		112,002
Commercial mortgage-backed securities - government issued	—		6,663		—		6,663
Commercial mortgage-backed securities - government-sponsored enterprises	—		11,967		—		11,967
Other securities	—		2,235		—		2,235
Interest rate swaps	—		18,346		—		18,346
Liabilities:
Interest rate swaps	—		20,885		—		20,885

For assets and liabilities measured at fair value on a recurring basis, there were no transfers between the levels during the three and six months ended June 30, 2020 or the year ended December 31, 2019 related to the above measurements.

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

	June 30, 2020
	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total
	(In Thousands)
Impaired loans	$	—	$	—	$	13,203	$	13,203
Foreclosed properties	—		—		1,389		1,389
Loan servicing rights	—		—		1,216		1,216

	December 31, 2019
	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total
	(In Thousands)
Impaired loans	$	—	$	—	$	15,699	$	15,699
Foreclosed properties	—		—		2,919		2,919
Loan servicing rights	—		—		1,195		1,195

Impaired loans were written down to the fair value of their underlying collateral less costs to sell of $13.2 million and $15.7 million at June 30, 2020 and December 31, 2019, respectively, through the establishment of specific reserves or by recording charge-offs when the carrying value exceeded the fair value of the underlying collateral of impaired loans. Valuation techniques consistent with the market approach, income approach, or cost approach were used to measure fair value. These techniques included observable inputs for the individual impaired loans being evaluated, such as current appraisals, recent sales of similar assets, or other observable market data, and unobservable inputs, typically when discounts are applied to appraisal values to adjust such values to current market conditions or to reflect net realizable values. The quantification of unobservable inputs for Level 3 impaired loan values range from 5% - 93% as of the measurement date of June 30, 2020. The weighted average of those unobservable inputs was 21%. The majority of the impaired loans are considered collateral dependent loans or are supported by a SBA guaranty.

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

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

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

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Fair Value of Financial Instruments

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

	June 30, 2020
	Carrying Amount		Fair Value
			Total		Level 1		Level 2		Level 3
	(In Thousands)
Financial assets:
Cash and cash equivalents	$	42,391	$	42,391	$	42,391	$	—	$	—
Securities available-for-sale	171,680		171,680		—		171,680		—
Securities held-to-maturity	29,826		30,887		—		30,887		—
Loans held for sale	13,672		14,902		—		14,902		—
Loans and lease receivables, net	2,029,399		2,027,279		—		—		2,027,279
Federal Home Loan Bank stock	13,470		N/A		N/A		N/A		N/A
Accrued interest receivable	7,207		7,207		7,207		—		—
Interest rate swaps	58,808		58,808		—		58,808		—
Financial liabilities:
Deposits	1,710,375		1,713,277		1,503,715		209,562		—
Federal Home Loan Bank advances and other borrowings	465,007		475,173		—		475,173		—
Junior subordinated notes	10,054		9,978		—		—		9,978
Accrued interest payable	2,012		2,012		2,012		—		—
Interest rate swaps	65,390		65,390		—		65,390		—
Off-balance sheet items:
Standby letters of credit	53		53		—		—		53

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

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	December 31, 2019
	Carrying Amount		Fair Value
			Total		Level 1		Level 2		Level 3
	(In Thousands)
Financial assets:
Cash and cash equivalents	$	67,102	$	67,102	$	61,202	$	5,900	$	—
Securities available-for-sale	173,133		173,133		—		173,133		—
Securities held-to-maturity	32,700		33,188		—		33,188		—
Loans held for sale	5,205		5,673		—		5,673		—
Loans and lease receivables, net	1,695,115		1,706,201		—		—		1,706,201
Federal Home Loan Bank stock	7,953		N/A		N/A		N/A		N/A
Accrued interest receivable	5,760		5,760		5,760		—		—
Interest rate swaps	18,346		18,346		—		18,346		—
Financial liabilities:
Deposits	1,530,379		1,532,517		1,241,891		290,626		—
Federal Home Loan Bank advances and other borrowings	319,382		319,507		—		319,507		—
Junior subordinated notes	10,047		9,970		—		—		9,970
Accrued interest payable	2,882		2,282		2,282		—		—
Interest rate swaps	20,885		20,885		—		20,885		—
Off-balance sheet items:
Standby letters of credit	63		63		—		—		63

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

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

Securities: The fair value measurements of investment securities are determined by a third-party pricing service which considers observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, trade execution data, market consensus prepayment speeds, credit information, and the securities’ terms and conditions, among other things. The fair value measurements are subject to independent verification by another pricing source on a quarterly basis to review for reasonableness. Any significant differences in pricing are reviewed with appropriate members of management who have the relevant technical expertise to assess the results. The Corporation has determined that these valuations are classified in Level 2 of the fair value hierarchy. When the independent pricing service does not provide a fair value measurement for a particular security, the Corporation will estimate the fair value based on specific information about each security. Fair values derived in this manner are classified in Level 3 of the fair value hierarchy.

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

Interest Rate Swaps: The carrying amount and fair value of existing derivative financial instruments are based upon independent valuation models, which use widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative contract. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The Corporation incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the

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

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

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

Note 13 — Derivative Financial Instruments

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

At June 30, 2020, the aggregate amortizing notional value of interest rate swaps with various commercial borrowers was $467.1 million. The Corporation receives fixed rates and pays floating rates based upon LIBOR on the swaps with commercial borrowers. These interest rate swaps mature between March 2021 and May 2037. Commercial borrower swaps are completed independently with each borrower and are not subject to master netting arrangements. These commercial borrower swaps were reported on the unaudited Consolidated Balance Sheet as a derivative asset of $58.8 million, included in accrued interest receivable and other assets. As of June 30, 2020, no interest rate swaps were in default.

At June 30, 2020, the aggregate amortizing notional value of interest rate swaps with dealer counterparties was also $467.1 million. The Corporation pays fixed rates and receives floating rates based upon LIBOR on the swaps with dealer counterparties. These interest rate swaps mature in March 2021 through May 2037. Dealer counterparty swaps are subject to master netting agreements among the contracts within our Bank and are reported on the unaudited Consolidated Balance Sheet as a net derivative liability of $58.8 million, included in accrued interest payable and other liabilities. The gross amount of dealer counterparty swaps, without regard to the enforceable master netting agreement, was a gross derivative liability of $58.8 million and no gross derivative asset. No right of offset existed with dealer counterparty swaps as of June 30, 2020.

All changes in the fair value of these instruments are recorded in other non-interest income. Given the mirror-image terms of the outstanding derivative portfolio, the change in fair value for the three and six months ended June 30, 2020 and 2019 had an insignificant impact on the unaudited Consolidated Statements of Income.

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

As of June 30, 2020, the aggregate notional value of interest rate swaps designated as cash flow hedges was $114.0 million. These interest rate swaps mature between December 2021 and December 2027. A pre-tax unrealized loss of $418,000 and $4.0

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million was recognized in other comprehensive income for the three and six months ended June 30, 2020, respectively, and there was no ineffective portion of these hedges.

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

	Interest Rate Swap Contracts
	Asset Derivatives			Liability Derivatives
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
	(In Thousands)
Derivatives not designated as hedging instruments
June 30, 2020	Accrued interest receivable and other assets	$	58,808	Accrued interest payable and other liabilities	$	58,808
December 31, 2019	Accrued interest receivable and other assets	$	18,346	Accrued interest payable and other liabilities	$	18,346
Derivatives designated as hedging instruments
June 30, 2020	Accumulated other comprehensive income (1)	$	6,582	Accrued interest payable and other liabilities	$	6,582
December 31, 2019	Accumulated other comprehensive income (1)	$	2,539	Accrued interest payable and other liabilities	$	2,539

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

Note 14 — Regulatory Capital

The Corporation and the Bank are subject to various regulatory capital requirements administered by Federal and Wisconsin banking agencies. Failure to meet minimum capital requirements can result in certain mandatory, and possibly additional discretionary actions on the part of regulators, that if undertaken, could have a direct material effect on the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory practices. The Corporation’s and the Bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. The Corporation regularly reviews and updates, when appropriate, its Capital and Liquidity Action Plan, which is designed to help ensure appropriate capital adequacy, to plan for future capital needs, and to ensure that the Corporation serves as a source of financial strength to the Bank. The Corporation’s and the Bank’s Boards of Directors and management teams adhere to the appropriate regulatory guidelines on decisions which affect their respective capital positions, including but not limited to, decisions relating to the payment of dividends and increasing indebtedness.

As a bank holding company, the Corporation’s ability to pay dividends is affected by the policies and enforcement powers of the Board of Governors of the Federal Reserve system (the “Federal Reserve”). Federal Reserve guidance urges financial institutions to strongly consider eliminating, deferring, or significantly reducing dividends if: (i) net income available to common stockholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividend; (ii) the prospective rate of earnings retention is not consistent with the bank holding company’s capital needs and overall current and prospective financial condition; or (iii) the bank holding company will not meet, or is in danger of not meeting, its minimum regulatory capital ratios. Management intends, when appropriate under regulatory guidelines, to consult with the Federal Reserve Bank of Chicago and provide it with information on the Corporation’s then-current and prospective earnings and capital position in advance of declaring any cash dividends. As a Wisconsin corporation, the Corporation is subject to the limitations of the Wisconsin Business Corporation Law, which prohibit the Corporation from paying dividends if such payment would: (i) render the Corporation unable to pay its debts as they become due in the usual course of business, or (ii) result in the Corporation’s assets being less than the sum of its total liabilities plus the amount needed to satisfy the preferential rights upon dissolution of any stockholders with preferential rights superior to those stockholders receiving the dividend.

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The Bank is also subject to certain legal, regulatory, and other restrictions on its ability to pay dividends to the Corporation. As a bank holding company, the payment of dividends by the Bank to the Corporation is one of the sources of funds the Corporation could use to pay dividends, if any, in the future and to make other payments. Future dividend decisions by the Bank and the Corporation will continue to be subject to compliance with various legal, regulatory, and other restrictions as defined from time to time.

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

As of June 30, 2020, the Corporation’s capital levels exceeded the regulatory minimums and the Bank’s capital levels remained characterized as well capitalized under the regulatory framework. The following tables summarize both the Corporation’s and the Bank’s capital ratios and the ratios required by their federal regulators:

	As of June 30, 2020
	Actual				Minimum Required for Capital Adequacy Purposes				For Capital Adequacy Purposes Plus Capital Conservation Buffer				Minimum Required to Be Well Capitalized Under Prompt Corrective Action Requirements
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount	Ratio
	(Dollars in Thousands)
Total capital (to risk-weighted assets)
Consolidated	$	247,276	11.97	%	$	165,275	8.00	%	$	216,924	10.50	%	N/A	N/A
First Business Bank	238,138		11.60		164,225		8.00		215,545		10.50		205,281	10.00	%
Tier 1 capital (to risk-weighted assets)
Consolidated	$	197,692	9.57	%	$	123,956	6.00	%	$	175,605	8.50	%	N/A	N/A
First Business Bank	212,443		10.35		123,169		6.00		174,489		8.50		164,225	8.00
Common equity tier 1 capital (to risk-weighted assets)
Consolidated	$	187,638	9.08	%	$	92,967	4.50	%	$	144,616	7.00	%	N/A	N/A
First Business Bank	212,443		10.35		92,376		4.50		143,697		7.00		133,433	6.50
Tier 1 leverage capital (to adjusted assets)
Consolidated	$	197,692	8.29	%	$	95,431	4.00	%	$	95,431	4.00	%	N/A	N/A
First Business Bank	212,443		8.96		94,856		4.00		94,856		4.00		118,570	5.00

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	As of December 31, 2019
	Actual				Minimum Required for Capital Adequacy Purposes				For Capital Adequacy Purposes Plus Capital Conservation Buffer				Minimum Required to Be Well Capitalized Under Prompt Corrective Action Requirements
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount	Ratio
	(Dollars in Thousands)
Total capital (to risk-weighted assets)
Consolidated	$	239,029	12.01	%	$	159,185	8.00	%	$	208,930	10.50	%	N/A	N/A
First Business Bank	233,181		11.79		158,177		8.00		207,607		10.50		197,721	10.00	%
Tier 1 capital (to risk-weighted assets)
Consolidated	$	194,456	9.77	%	$	119,388	6.00	%	$	169,134	8.50	%	N/A	N/A
First Business Bank	212,315		10.74		118,633		6.00		168,063		8.50		158,177	8.00
Common equity tier 1 capital (to risk-weighted assets)
Consolidated	$	184,409	9.27	%	$	89,541	4.50	%	$	139,286	7.00	%	N/A	N/A
First Business Bank	212,315		10.74		88,974		4.50		138,405		7.00		128,519	6.50
Tier 1 leverage capital (to adjusted assets)
Consolidated	$	194,456	9.27	%	$	83,950	4.00	%	$	83,950	4.00	%	N/A	N/A
First Business Bank	212,315		10.18		83,414		4.00		83,414		4.00		104,268	5.00

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

General

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

Forward-Looking Statements

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

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

• The effect of the COVID-19 pandemic on the Corporation’s credit quality, revenue, and business operations.

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

• Increases in defaults by borrowers and other delinquencies.

• Our ability to manage growth effectively, including the successful expansion of our client support, administrative infrastructure, and internal management systems.

• Fluctuations in interest rates and market prices.

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

• Changes in legislative or regulatory requirements applicable to us and our subsidiaries.

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

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

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

These risks could cause actual results to differ materially from what we have anticipated or projected. These risk factors and uncertainties should be carefully considered by our stockholders and potential investors. See Part I, Item 1A — Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019 and Part II, Item 1A — Risk Factors in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, for discussion relating to risk factors impacting us. Investors should not place undue reliance on any such forward-looking statements, which speak only as of the date made. The factors described within this Form 10-Q could affect our financial performance and could cause actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods.

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

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

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

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Overview

We are a registered bank holding company incorporated under the laws of the State of Wisconsin and are engaged in the commercial banking business through our wholly-owned banking subsidiary, FBB. All of our operations are conducted through the Bank and certain subsidiaries of FBB. We operate as a business bank focusing on delivering a full line of commercial banking products and services tailored to meet the specific needs of small and medium-sized businesses, business owners, executives, professionals, and high net worth individuals. Our products and services include those for business banking, private wealth, and bank consulting. Within business banking, we offer commercial lending, consumer and other lending, asset-based lending, accounts receivable financing, equipment financing, vendor financing, floorplan financing, SBA lending and servicing, treasury management services, and company retirement plans. Our private wealth services for executives and individuals include trust and estate administration, financial planning, investment management, and private banking. For other financial institutions, our bank consulting experts provide investment portfolio administrative services, asset liability management services, and asset liability management process validation. We do not utilize a branch network to attract retail clients. Our operating philosophy is predicated on deep client relationships fostered by local banking partners and specialized business lines where we provide skilled expertise, combined with the efficiency of centralized administrative functions such as information technology, loan and deposit operations, finance and accounting, credit administration, compliance, marketing, and human resources. Our focused model allows experienced staff to provide the level of financial expertise needed to develop and maintain long-term relationships with our clients.

Operational Summary

Results as of and for the three and six months ended June 30, 2020 include:

• Net income totaled $3.3 million, or diluted earnings per share of $0.38, for the three months ended June 30, 2020, compared to $6.6 million, or diluted earnings per share of $0.75, for the same period in 2019. Net income totaled $6.6 million, or diluted earnings per share of $0.77, for the six months ended June 30, 2020, compared to $12.5 million, or diluted earnings per share of $1.43, for the same period in 2019.

• During the second quarter of 2020, the Corporation disbursed $327.9 million in Paycheck Protection Program (“PPP”) loans and received processing fee income from the Small Business Administration (“SBA”) of $8.7 million. The processing fee income is deferred and recognized over the contractual life of the loan, or accelerated at forgiveness. During the second quarter of 2020, $859,000 was recognized in interest income.

• Record pre-tax, pre-provision adjusted earnings, which excludes certain one-time and discrete items, totaled $9.8 million for the three months ended June 30, 2020, up 32.4% for the same period in 2019. Pre-tax, pre-provision adjusted return on average assets was 1.61% for the three months ended June 30, 2020, compared 1.46% for the same period in 2019. Pre-tax, pre-provision adjusted earnings totaled $17.3 million for the six months ended June 30, 2020, up 19.3% for the same period in 2019. Pre-tax, pre-provision adjusted return on average assets was 1.53% for the six months ended June 30, 2020, compared 1.46% for the same period in 2019.

• Period-end gross loans and leases receivable were $2.057 billion as of June 30, 2020, up $342.2 million from December 31, 2019. Line of credit utilization was significantly impacted by PPP loan proceeds and was $212.6 million as of June 30, 2020, down from $281.4 million at December 31, 2019. Gross loans and leases receivable, excluding PPP loans and lines of credit, were $1.516 billion as of June 30, 2020, up 11.6% annualized, from December 31, 2019.

• The allowance for loan and lease losses increased $7.9 million, or 40.7%, compared to December 31, 2019 primarily due to a $4.3 million and $2.1 million increase in the general and specific reserves, respectively, driven by the COVID-19 pandemic. The allowance for loan and lease losses increased to 1.33% of total loans, compared to1.14% at December 31, 2019. Excluding PPP loans, the allowance for loan and lease losses increased to 1.58% of total loans as of June 30, 2020.

• Provision for loan and lease losses totaled $5.5 million for the three months ended June 30, 2020, compared to a provision benefit of $784,000 for the same period in 2019. Provision for loan and lease losses totaled $8.7 million for the six months ended June 30, 2020, compared to a provision benefit of $736,000 for the same period in 2019.

• Robust liquidity position includes record in-market deposits of $1.621 billion, total deposits of $1.710 billion, and on-balance sheet liquidity of $611.6 million, defined as total short-term investments, unencumbered securities available-for-sale, and unencumbered pledged loans. In-market deposit balances were inflated due to PPP loan proceeds.

• Net interest margin was 3.34% and 3.39% for the three and six months ended June 30, 2020, respectively, compared to 3.52% and 3.66% for the three and six months ended June 30, 2019, respectively. Adjusted net interest margin, which excludes certain one-time and discrete items, was 3.33% for the three and six months ended June 30, 2020, respectively, compared to 3.31% and 3.33% for the three and six months ended June 30, 2019, respectively.

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• Fees in lieu of interest, defined as prepayment fees, asset-based loan fees, non-accrual interest, and loan fee amortization, totaled $2.3 million and $3.1 million for the three and six months ended June 30, 2020, respectively, compared to $1.2 million and $3.5 million for the three and six months ended June 30, 2019, respectively.

• Top line revenue, defined as net interest income plus non-interest income, totaled $25.2 million for the three months ended June 30, 2020, up 11.3% from the same period in 2019. Top line revenue totaled $48.7 million for the six months ended June 30, 2020, up 8.0% from the same period in 2019.

• Non-interest income totaled $6.3 million, or 25.1% of total revenue, or the three months ended June 30, 2020, surpassing the Corporation’s goal of 25% for the fifth consecutive quarter. Non-interest income totaled $12.7 million, or 26.2% of total revenue, for the six months ended June 30, 2020.

• Non-interest expense was $18.3 million and $34.5 million for the three and six months ended June 30, 2020, respectively, compared to $17.5 million and $35.2 million for the three and six months ended June 30, 2019, respectively. Operating expense, which excludes certain one-time and discrete items, totaled $15.4 million and $31.3 million for the three and six months ended June 30, 2020, respectively, compared to $15.3 million and $30.5 million for the three and six months ended June 30, 2019, respectively.

• The Corporation incurred a $744,000 loss on the early extinguishment of $59.5 million in Federal Home Loan Bank (“FHLB”) term advances late in the second quarter of 2020, as the Corporation lowered wholesale funding costs and improved the Corporation’s funding position with the expectation of a low interest rate environment for an extended period of time.

• The efficiency ratio improved to 61.22% and 64.36% for the three and six months ended June 30, 2020, respectively, down from 67.41% and 67.72% for the three and six months ended June 30, 2019, respectively.

• Historic tax credit programs contributed $690,000, or $0.08 per share, during the three months ended June 30, 2020, compared to $446,000, or $0.05 per share for the same period in 2019.

COVID-19 Update

Business Continuity

The Corporation continues to strictly adhere to COVID-19 health and safety-related requirements and best practices across all of our locations. During the second quarter of 2020, employees slowly resumed business travel, as necessary, while business development efforts have continued to be somewhat negatively affected by limitations on in-person appointments.

Portions of the Corporation’s workforce started returning to the office, subject to local mandates and restrictions, on a rotating basis. Management will monitor the activity closely and adjust accordingly as the health and safety of our employees and clients remain our highest priority.

The Corporation had no furloughs or layoffs related to COVID-19 to date.

Paycheck Protection Program

During the second quarter of 2020, the Corporation processed over 700 applications from existing and new clients, disbursed $327.9 million in funds, and received processing fee income from the SBA of $8.7 million. The processing fee income is deferred and recognized over the contractual life of the loan, or accelerated at forgiveness, as an adjustment of yield using the interest method. During the second quarter of 2020, $859,000 was recognized in interest income. The SBA provides a guaranty to the lender of 100% of principal and interest, unless the lender violated an obligation under the agreement. As loan losses are expected to be immaterial, if any at all, due to the guaranty, management excluded the PPP loans from the allowance for loan and lease losses calculation. Management funded these short-term loans through a combination of excess cash held at the Federal Reserve and the increase in in-market deposits.

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Liquidity Sources

Management has reviewed all primary and secondary sources of liquidity in preparation for any unforeseen funding needs due to the COVID-19 pandemic and prioritized based on available capacity, term flexibility, and cost. As of June 30, 2020, the Corporation had the following sources of liquidity, including the Corporation’s ability to participate in the Federal Reserve’s Paycheck Protection Program Liquidity Facility (“PPPLF”):

	As of
	June 30, 2020
	(In Thousands)
Short-term investments	$	27,839
PPPLF availability	298,327
Collateral value of unencumbered pledged loans (FHLB borrowing availability)	178,587
Market value of unencumbered securities (Fed Discount Window and FHLB borrowing availability)	106,808
Total sources of liquidity	$	611,561

In addition to the above primary sources of liquidity, as of June 30, 2020, the Corporation also had access to $53.5 million in federal funds lines with various correspondent banks and significant experience accessing the highly liquid brokered certificate of deposit market.

Capital Strength

The Corporation’s capital ratios continued to exceed the highest required regulatory benchmark levels.

• Total capital to risk-weighted assets at June 30, 2020, was 11.97%, tier 1 capital to risk-weighted assets was 9.57%, tier 1 leverage capital to adjusted average assets was 8.29%, and common equity tier 1 capital to risk-weighted assets was 9.08%. Tangible common equity to tangible assets was 7.56%. Excluding PPP loans, tier 1 leverage capital to adjusted average assets and tangible common equity to tangible assets were 9.19% and 8.72%, respectively.

• Management suspended the Corporation’s stock repurchase program in March 2020 due to the uncertainty surrounding the COVID-19 pandemic. As of March 16, 2020, the Corporation had repurchased 141,137 shares of its common stock at a weighted average price of $24.62 per share, for a total value of $3.5 million. The Corporation has $1.5 million of buyback authority remaining.

• As previously announced, during the second quarter of 2020, the Corporation’s Board of Directors declared a regular quarterly dividend of $0.165 per share. The dividend was paid on May 14, 2020 to stockholders of record at the close of business on May 4, 2020. Measured against second quarter 2020 diluted earnings per share of $0.38, the dividend represents a 43.4% payout ratio. The Board of Directors routinely considers dividend declarations as part of its normal course of business.

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Deferral Requests

The Corporation provided loan modifications up to six months to certain borrowers impacted by COVID-19 who were current in their payments at the inception of the Corporation’s loan modification program. As of June 30, 2020, the Corporation had processed 448 deferral requests on loans totaling $323.2 million, or 18.6% of gross loans and leases. Loan deferrals of six months accounted for 60.2% of the total $323.2 million in deferral requests and the remaining balance were primarily for three months. Management anticipates the loan modifications may continue throughout 2020. The following tables represent a breakdown of the deferred loan balances by industry segment and collateral type:

	As of
	June 30, 2020
					Collateral Type
Industries Description	Balance		% Deferred of Total Industry		Real Estate		Non Real Estate
	(Dollars in Thousands)
Real Estate and Rental and Leasing	$	147,584	18.8	%	$	142,519	$	5,065
Accommodation and Food Services	52,468		52.7	%	49,198		3,270
Manufacturing	34,214		17.5	%	20,253		13,961
Health Care and Social Assistance	19,552		15.9	%	12,136		7,416
Transportation and Warehousing	19,402		21.3	%	422		18,980
Retail Trade	14,851		29.7	%	11,355		3,496
Information	11,228		64.1	%	2,430		8,798
Utilities	7,129		96.4	%	—		7,129
Construction	6,448		6.7	%	6,359		89
Wholesale Trade	5,695		5.7	%	569		5,126
Other Services (except Public Administration)	1,673		3.0	%	50		1,623
Professional, Scientific, and Technical Services	933		2.3	%	—		933
Administrative and Support and Waste Management and Remediation Services	831		9.9	%	728		103
Finance and Insurance	743		1.8	%	715		28
Arts, Entertainment, and Recreation	300		1.7	%	292		8
Agriculture, Forestry, Fishing and Hunting	165		1.3	%	—		165
Total deferred loan balances	$	323,216			$	247,026	$	76,190

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

	As of
	June 30, 2020
	Category
	I			II			III			Total
	(Dollars in Thousands)
Total deferred loan balances	$	221,414		$	66,554		$	35,248		$	323,216
% of Total	68.5		%	20.6		%	10.9		%	100.0		%

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The following table is a further breakdown of the deferred loan balances and collateral type for the Real Estate and Rental and Leasing industry:

	As of
	June 30, 2020
					Collateral Type
Real Estate and Rental and Leasing Detail:	Balance		% Deferred of Sub-Industry		Real Estate		Non Real Estate
	(Dollars in Thousands)
Office - Class A	$	23,204	15.3	%	$	23,204	$	—
Retail - Non-Credit Tenant - Shopping Center	22,657		73.5	%	22,657		—
Office - Class B	17,652		32.1	%	17,652		—
1-4 Family	16,887		64.5	%	16,887		—
Multi-Family - Market Rent	16,174		8.5	%	16,174		—
Retail - Non-Credit Tenant - Strip Center	11,389		59.7	%	11,389		—
Multi-Family - Student Housing	8,466		20.2	%	8,466		—
Retail - Non-Credit Tenant - Restaurant	6,621		64.9	%	6,621		—
Retail - Other	6,110		13.9	%	6,110		—
Retail - Non-Credit-Tenant - Big Box	5,629		100.0	%	5,629		—
Other	12,795		5.6	%	7,730		5,065
Total Real Estate and Rental and Leasing	$	147,584			$	142,519	$	5,065

The following table is a further breakdown of the deferred loan balances and collateral type for the Accommodation and Food Services industry:

	As of
	June 30, 2020
					Collateral Type
Accommodation and Food Services Detail:	Balance		% Deferred of Sub-Industry		Real Estate		Non Real Estate
	(Dollars in Thousands)
Hotel - Flag	$	43,011	63.1	%	$	43,011	$	—
Hotel - No Flag	1,862		46.0	%	1,862		—
Other	5,594		22.7	%	2,324		3,270
Retail - Restaurant/Bar	2,001		13.0	%	2,001		—
Total Accommodation and Food Service	$	52,468			$	49,198	$	3,270

Exposure to Stressed Industries

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

	As of
	June 30, 2020
Industries:	Balance		% Gross Loans and Leases (1)
	(Dollars in Thousands)
Retail (2)	$	70,028	4.0	%
Hospitality	73,502		4.2	%
Entertainment	16,675		1.0	%
Restaurants & food service	24,884		1.4	%
Total outstanding exposure	$	185,089	10.7	%

(1) Excluding PPP loans.

(2) Includes $51.7 million in loans secured by commercial real estate.

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As of June 30, 2020, the Corporation had no meaningful direct exposure to the energy sector, airline industry or retail consumer, and does not participate in shared national credits.

Because of the significant uncertainties related to the ultimate duration of the COVID-19 pandemic and its effects on our clients and prospects, and on the national and local economy as a whole, there can be no assurances as to how the crisis may ultimately affect the Corporation’s loan portfolio.

Results of Operations

Top Line Revenue

Top line revenue, comprised of net interest income and non-interest income, increased 11.3% for the three months ended June 30, 2020 compared to the same period in the prior year primarily due to an increase in fees in lieu of interest and a reduction in interest rate paid on deposits, partially offset by lower loan yields. Top line revenue increased 8.0% for the six months ended June 30, 2020 compared to the same period in the prior year primarily due to an increase in commercial loan interest rate swap fee income and a reduction in interest rates paid on deposits, partially offset by lower loan yields and a reduction in fees in lieu of interest.

The components of top line revenue were as follows:

	For the Three Months Ended June 30,								For the Six Months Ended June 30,
	2020		2019		$ Change		% Change		2020		2019		$ Change		% Change
	(Dollars in Thousands)
Net interest income	$	18,888	$	16,852	$	2,036	12.1	%	$	35,937	$	34,606	$	1,331	3.8	%
Non-interest income	6,319		5,805		514		8.9		12,733		10,443		2,290		21.9
Top line revenue	$	25,207	$	22,657	$	2,550	11.3		$	48,670	$	45,049	$	3,621	8.0

Annualized Return on Average Assets and Annualized Return on Average Equity

ROAA for the three months ended June 30, 2020 decreased to 0.55% compared to 1.30% for the three months ended June 30, 2019. ROAA for the six months ended June 30, 2020 decreased to 0.58% compared to 1.25% for the six months ended June 30, 2019. The decrease in ROAA was primarily due to an increase in the provision for loan and lease losses related to the COVID-19 pandemic. This reduction in profitability was partially offset by an increase in commercial loan interest rate swap fee income, a decrease in SBA recourse provision, an overall decrease in operating expenses, and net interest income improvement mainly due to lower rates paid on deposits. We consider ROAA a critical metric to measure the profitability of our organization and how efficiently our assets are deployed. ROAA also allows us to better benchmark our profitability to our peers without the need to consider different degrees of leverage which can ultimately influence return on equity measures.

ROAE for the three months ended June 30, 2020 was 6.70% compared to 14.09% for the three months ended June 30, 2019. ROAE for the six months ended June 30, 2020 was 6.92% compared to 13.89% for the six months ended June 30, 2019. The reasons for the decrease in ROAE are consistent with the explanations discussed above with respect to ROAA. We view ROAE as an important measurement for monitoring profitability and continue to focus on improving our return to our shareholders by enhancing the overall profitability of our client relationships, controlling our expenses, and minimizing our costs of credit.

Efficiency Ratio

Efficiency ratio is a non-GAAP measure representing non-interest expense excluding the effects of the SBA recourse provision, impairment of tax credit investments, losses on foreclosed properties, amortization of other intangible assets, losses on early extinguishment of debt, and other discrete items, if any, divided by operating revenue, which is equal to net interest income plus non-interest income less realized gains or losses on securities, if any.

The efficiency ratio was 61.22% and 64.36% for the three and six months ended June 30, 2020 compared to 67.41% and 67.72% for the three and six months ended June 30, 2019. Operating revenue growth outpaced the change in operating expense for the three and six months ended June 30, 2020, resulting in positive operating leverage. Results for the three and six months ended June 30, 2020 have benefited from PPP interest income, PPP loan processing fee recognition, and below average business-related expenses due to the COVID-19 pandemic. For the three months ended June 30, 2020 compared to the three

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months ended June 30, 2019, operating revenue increased 11.2% while operating expense increased 1.0%. Similarly, for the six months ended June 30, 2020 compared to the six months ended June 30, 2019, operating revenue increased 8.0% while operating expense increased 2.7%. We believe we will continue to generate modest positive operating leverage and progress towards enhancing our long-term efficiency ratio at a measured pace as we focus on strategic initiatives directed toward revenue growth; although this growth may be muted somewhat by the current health crisis and its effect on the economy. These initiatives include efforts to expand our specialty finance lines of business, increase our commercial banking market share, and scale our private wealth management business in less mature markets.

We believe the efficiency ratio allows investors and analysts to better assess the Corporation’s operating expenses in relation to its top line revenue by removing the volatility that is associated with certain non-recurring and other discrete items. The efficiency ratio also 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 ROAA and ROAE. The information provided below reconciles the efficiency ratio to its most comparable GAAP measure.

Please refer to the Non-Interest Income and Non-Interest Expense sections below for discussion on additional drivers of the year-over-year change in the efficiency ratio.

	For the Three Months Ended June 30,											For the Six Months Ended June 30,
	2020			2019			$ Change			% Change		2020			2019			$ Change			% Change
	(Dollars in Thousands)
Total non-interest expense	$	18,343		$	17,464		$	879		5.0	%	$	34,488		$	35,206		$	(718	)	(2.0	)%
Less:
Net loss (gain) on foreclosed properties	348			(21		)	369			NM		450			(21		)	471			NM
Amortization of other intangible assets	9			11			(2		)	(18.2	)	18			21			(3		)	(14.3	)
SBA recourse (benefit) provision	(30		)	113			(143		)	NM		(5		)	594			(599		)	NM
Tax credit investment impairment	1,841			2,088			(247		)	(11.8	)	1,954			4,102			(2,148		)	(52.4	)
Loss on early extinguishment of debt	744			—			744			NM		744			—			744			NM
Total operating expense	$	15,431		$	15,273		$	158		1.0		$	31,327		$	30,510		$	817		2.7
Net interest income	18,888			16,852			2,036			12.1		$	35,937		$	34,606		$	1,331		3.8
Total non-interest income	6,319			5,805			514			8.9		12,733			10,443			2,290			21.9
Less:
Net loss on sale of securities	—			(1		)	1			NM		(4		)	(1		)	(3		)	NM
Total operating revenue	$	25,207		$	22,658		$	2,549		11.2		$	48,674		$	45,050		$	3,624		8.0
Pre-tax, pre-provision adjusted earnings	$	9,776		$	7,385		$	2,391		32.4		$	17,347		$	14,540		$	2,807		19.3
Efficiency ratio	61.22		%	67.41		%						64.36		%	67.72		%

NM = Not Meaningful

Net Interest Income

Net interest income levels depend on the amount of and yield on interest-earning assets as compared to the amount of and rate paid on interest-bearing liabilities. Net interest income is sensitive to changes in market rates of interest and the asset/liability management processes to prepare for and respond to such changes.

The following table provides information with respect to (1) the change in net interest income attributable to changes in rate (changes in rate multiplied by prior volume) and (2) the change in net interest income attributable to changes in volume (changes in volume multiplied by prior rate) for the three and six months ended June 30, 2020 compared to the same period in 2019. The change in net interest income attributable to changes in rate and volume (changes in rate multiplied by changes in

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volume) has been allocated to the rate and volume changes in proportion to the relationship of the absolute dollar amounts of the change in each.

	Increase (Decrease) for the Three Months Ended June 30,									Increase (Decrease) for the Six Months Ended June 30,
	2020 Compared to 2019									2020 Compared to 2019
	Rate			Volume			Net			Rate			Volume			Net
	(In Thousands)
Interest-earning assets
Commercial real estate and other mortgage loans(1)	$	(2,972	)	$	667		$	(2,305	)	$	(4,654	)	$	1,183		$	(3,471	)
Commercial and industrial loans(1)	(3,364		)	3,234			(130		)	(5,495		)	4,384			(1,111		)
Direct financing leases(1)	122			(51		)	71			(64		)	(84		)	(148		)
Consumer and other loans(1)	(55		)	63			8			(83		)	99			16
Total loans and leases receivable	(6,269		)	3,913			(2,356		)	(10,296		)	5,582			(4,714		)
Mortgage-related securities	(186		)	74			(112		)	(267		)	277			10
Other investment securities	(1		)	8			7			7			(29		)	(22		)
FHLB and FRB Stock	(9		)	50			41			83			73			156
Short-term investments	(223		)	95			(128		)	(422		)	135			(287		)
Total net change in income on interest-earning assets	(6,688		)	4,140			(2,548		)	(10,895		)	6,038			(4,857		)
Interest-bearing liabilities
Transaction accounts	(1,075		)	377			(698		)	(1,508		)	586			(922		)
Money market accounts	(2,680		)	198			(2,482		)	(3,791		)	655			(3,136		)
Certificates of deposit	(170		)	(228		)	(398		)	(231		)	(375		)	(606		)
Wholesale deposits	114			(870		)	(756		)	359			(1,709		)	(1,350		)
Total deposits	(3,811		)	(523		)	(4,334		)	(5,171		)	(843		)	(6,014		)
FHLB advances	(3,062		)	2,834			(228		)	(1,039		)	926			(113		)
Federal reserve PPP lending facility	—			18			18			—			18			18
Other borrowings	(44		)	4			(40		)	(85		)	3			(82		)
Junior subordinated notes	—			—			—			2			1			3
Total net change in expense on interest-bearing liabilities	(6,917		)	2,333			(4,584		)	(6,293		)	105			(6,188		)
Net change in net interest income	$	229		$	1,807		$	2,036		$	(4,602	)	$	5,933		$	1,331

(1) The average balances of loans and leases include non-accrual loans and leases and loans held for sale.

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The table below shows our average balances, interest, average yields/rates, net interest margin, and the spread between the combined average yields earned on interest-earning assets and average rates on interest-bearing liabilities for the three and six months ended June 30, 2020 and 2019. The average balances are derived from average daily balances.

	For the Three Months Ended June 30,
	2020							2019
	Average Balance			Interest		Average Yield/Rate(4)		Average Balance			Interest		Average Yield/Rate(4)
	(Dollars in Thousands)
Interest-earning assets
Commercial real estate and other mortgage loans(1)	$	1,192,530		$	12,450	4.18	%	$	1,139,036		$	14,755	5.18	%
Commercial and industrial loans(1)	726,862			8,347		4.59		493,093			8,477		6.88
Direct financing leases(1)	27,115			395		5.83		31,610			324		4.10
Consumer and other loans(1)	36,614			356		3.89		30,555			348		4.56
Total loans and leases receivable(1)	1,983,121			21,548		4.35		1,694,294			23,904		5.64
Mortgage-related securities(2)	174,113			912		2.10		161,827			1,024		2.53
Other investment securities(3)	30,194			158		2.09		28,723			151		2.10
FHLB and FRB stock	10,301			127		4.93		6,875			86		5.00
Short-term investments	61,030			16		0.10		22,570			144		2.55
Total interest-earning assets	2,258,759			22,761		4.03		1,914,289			25,309		5.29
Non-interest-earning assets	167,008							110,516
Total assets	$	2,425,767						$	2,024,805
Interest-bearing liabilities
Transaction accounts	$	368,844		291		0.32		$	234,241		989		1.69
Money market accounts	637,714			368		0.23		593,431			2,850		1.92
Certificates of deposit	123,581			627		2.03		164,537			1,025		2.49
Wholesale deposits	105,597			638		2.42		251,060			1,394		2.22
Total interest-bearing deposits	1,235,736			1,924		0.62		1,243,269			6,258		2.01
FHLB advances	409,281			1,283		1.25		266,137			1,511		2.27
Federal reserve PPPLF	20,821			18		0.35		—			—		—
Other borrowings	24,681			371		6.01		24,463			411		6.72
Junior subordinated notes	10,052			277		11.02		10,038			277		11.04
Total interest-bearing liabilities	1,700,571			3,873		0.91		1,543,907			8,457		2.19
Non-interest-bearing demand deposit accounts	440,413							254,177
Other non-interest-bearing liabilities	86,504							40,110
Total liabilities	2,227,488							1,838,194
Stockholders’ equity	198,279							186,611
Total liabilities and stockholders’ equity	$	2,425,767						$	2,024,805
Net interest income				$	18,888						$	16,852
Interest rate spread						3.12	%						3.10	%
Net interest-earning assets	$	558,188						$	370,382
Net interest margin						3.34	%						3.52	%
Average interest-earning assets to average interest-bearing liabilities	132.82		%					123.99		%
Return on average assets(4)	0.55							1.30
Return on average equity(4)	6.70							14.09
Average equity to average assets	8.17							9.22
Non-interest expense to average assets(4)	3.02							3.45

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

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

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

(4) Represents annualized yields/rates.

47

	For the Six Months Ended June 30,
	2020							2019
	Average Balance			Interest		Average Yield/Rate(4)		Average Balance			Interest		Average Yield/Rate(4)
	(Dollars in Thousands)
Interest-earning assets
Commercial real estate and other mortgage loans(1)	$	1,173,251		$	25,973	4.43	%	$	1,126,449		$	29,444	5.23	%
Commercial and industrial loans(1)	621,399			16,204		5.22		479,644			17,315		7.22
Direct financing leases(1)	27,538			503		3.65		31,927			651		4.08
Consumer and other loans(1)	36,244			717		3.96		31,491			701		4.45
Total loans and leases receivable(1)	1,858,432			43,397		4.67		1,669,511			48,111		5.76
Mortgage-related securities(2)	177,352			1,973		2.22		153,981			1,963		2.55
Other investment securities(3)	26,737			285		2.13		29,423			307		2.09
FHLB and FRB stock	9,407			331		7.04		6,965			175		5.03
Short-term investments	48,396			146		0.60		33,818			433		2.56
Total interest-earning assets	2,120,324			46,132		4.35		1,893,698			50,989		5.39
Non-interest-earning assets	144,991							103,196
Total assets	$	2,265,315						$	1,996,894
Interest-bearing liabilities
Transaction accounts	$	320,188		938		0.59		$	224,873		1,860		1.65
Money market accounts	653,598			2,237		0.68		574,666			5,373		1.87
Certificates of deposit	128,791			1,377		2.14		162,082			1,983		2.45
Wholesale deposits	119,032			1,488		2.50		259,379			2,838		2.19
Total interest-bearing deposits	1,221,609			6,040		0.99		1,221,000			12,054		1.97
FHLB advances	367,604			2,842		1.55		267,058			2,955		2.21
Federal reserve PPPLF	10,410			18		0.35		—			—		—
Other borrowings	24,533			740		6.03		24,456			822		6.72
Junior subordinated notes	10,050			555		11.04		10,036			552		11.00
Total interest-bearing liabilities	1,634,206			10,195		1.25		1,522,550			16,383		2.15
Non-interest-bearing demand deposit accounts	365,771							255,691
Other non-interest-bearing liabilities	74,436							39,017
Total liabilities	2,074,413							1,817,258
Stockholders’ equity	190,902							179,636
Total liabilities and stockholders’ equity	$	2,265,315						$	1,996,894
Net interest income				$	35,937						$	34,606
Interest rate spread						3.10	%						3.23	%
Net interest-earning assets	$	486,118						$	371,148
Net interest margin						3.39	%						3.66	%
Average interest-earning assets to average interest-bearing liabilities	129.75		%					124.38		%
Return on average assets(4)	0.58							1.25
Return on average equity(4)	6.92							13.89
Average equity to average assets	8.43							9.00
Non-interest expense to average assets	3.04							3.53

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

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

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

(4) Represents annualized yields/rates.

48

Comparison of Net Interest Income for the Three and Six Months Ended June 30, 2020 and 2019

Net interest income increased $2.0 million, or 12.1%, during the three months ended June 30, 2020 compared to the three months ended June 30, 2019. The increase in net interest income reflected a reduction in the rate paid on deposits, interest income received from PPP loans, and an increase in fees collected in lieu of interest, partially offset by a decrease in the yield on loans and leases. Fees in lieu of interest, which can vary from quarter to quarter, totaled $2.3 million, compared to $1.2 million. Excluding fees in lieu of interest, interest income from PPP loans, and interest expense from Federal Reserve PPPLF advances, net interest income increased $364,000, or 2.3%. Average gross loans and leases for the three months ended June 30, 2020 increased $288.8 million, or 17.0%, compared to the three months ended June 30, 2019. Excluding PPP loans and lines of credit, average gross loans and leases for the three months ended June 30, 2020 increased $113.0 million, or 8.1%, compared to the three months ended June 30, 2019. Net interest income for the six months ended June 30, 2020 increased $1.3 million, or 3.8%, compared to the six months ended June 30, 2019. The increase in net interest income reflected a reduction in the rate paid on deposits and interest income received from PPP loans, partially offset by lower loan yields and a decrease in fees collected in lieu of interest. Fees in lieu of interest totaled $3.1 million for the six months ended June 30, 2020 compared to $3.5 million in the prior year period. Excluding fees in lieu of interest, interest income from PPP loans, and interest expense from Federal Reserve PPPLF advances, net interest income for the six months ended June 30, 2020 increased $1.2 million, or 3.9%. Average gross loans and leases for the six months ended June 30, 2020 increased $188.9 million, or 11.3%, compared to the six months ended June 30, 2019. Excluding PPP loans and lines of credit, average gross loans and leases for the six months ended June 30, 2020 increased $107.8 million, or 15.6% annualized, compared to the six months ended June 30, 2019.

The yield on average loans and leases for the three and six months ended June 30, 2020 declined to 4.35% and 4.67%, respectively, compared to 5.64% and 5.76% for the three and six months ended June 30, 2019, respectively. Both periods were impacted by fees collected in lieu of interest and the current period was impacted by PPP loan interest income. Without the impact of these fees and PPP loan interest income, the yield on average loans and leases excluding PPP loans for the three and six months ended June 30, 2020 was 4.33% and 4.59%, respectively, compared to 5.36% and 5.34% for the three and six months ended, June 30, 2019, respectively. Similarly, the yield on average interest-earning assets for the three and six months ended June 30, 2020 measured 4.03% and 4.35%, respectively, compared to 5.29% and 5.39% for the three and six months ended June 30, 2019, respectively. Excluding fees collected in lieu of interest and PPP loan interest income, the yield on average interest-earning assets excluding PPP loans for the three and six months ended June 30, 2020 was 3.97% and 4.26%, respectively, compared to 5.03% and 5.01% for the three and six months ended June 30, 2019, reflecting a decrease in LIBOR and Prime.

The average rate paid on total interest-bearing liabilities for the three and six months ended June 30, 2020 decreased to 0.91% and 1.25%, respectively, compared to 2.19% and 2.15% for the three and six months ended June 30, 2019, respectively. Total interest-bearing liabilities include interest-bearing deposits, federal funds purchased, FHLB advances, Federal Reserve PPPLF advances, subordinated and junior subordinated notes payable, and other borrowings.

The average rate paid on total in-market deposits — comprised of all transaction accounts, money market accounts, and non-wholesale deposits — for the three and six months ended June 30, 2020 decreased to 0.33% and 0.62%, respectively, down from 1.56% and 1.51%, for the three and six months ended June 30, 2019, respectively. The average rate paid on total in-market deposits declined as the Corporation decreased deposit rates in response to the Federal Open Market Committee’s (“FOMC”) decision to decrease the target federal funds rate 225 basis points from July 2019 to June 2020. The average target federal funds rate decreased 234 basis points.

Consistent with the Corporation’s longstanding funding strategy to manage interest rate risk and match fund long-term, fixed-rate loans, wholesale funds are used at various maturity terms to meet the Corporation’s funding needs. Average FHLB advances for the three months ended June 30, 2020 increased $143.1 million to $409.3 million at an average rate paid of 1.25%, compared to $266.1 million at an average rate paid of 2.27% for the three months ended June 30, 2019. Average FHLB advances for the six months ended June 30, 2020 increased $100.5 million to $367.6 million at an average rate paid of 1.55%, compared to $267.1 million at an average rate paid of 2.21% for the six months ended June 30, 2019. As of June 30, 2020, the weighted average original maturity of our FHLB term advances was 5.3 years. Average wholesale deposits, consisting of brokered certificates of deposit and deposits gathered from internet listing services, for the three months ended June 30, 2020 decreased $145.5 million to $105.6 million at an average rate paid of 2.42%, compared to $251.1 million at an average rate paid of 2.22%. Average wholesale deposits for the six months ended June 30, 2020 decreased $140.3 million to $119.0 million at an average rate paid of 2.50%, compared to $259.4 million at an average rate paid of 2.19% for the six months ended June 30, 2019. The existing wholesale deposit portfolio is maturing and being replaced, as needed, by lower cost FHLB advances to match fund long-term, fixed-rate loans. As of June 30, 2020, the weighted average original maturity of our wholesale deposits was 4.6 years.

49

The average rate paid on total bank funding for the three and six months ended June 30, 2020 decreased to 0.61% and 0.91%, respectively, compared to 1.76% and 1.72% for the three and six months ended June 30, 2019. Total bank funding is defined as total deposits plus FHLB advances and Federal Reserve PPPLF advances.

                Net interest margin decreased 18 basis points to 3.34% for the three months ended June 30, 2020 compared to 3.52% for the three months ended June 30, 2019. The decrease was primarily due to the decrease in the average yield on loans and leases receivable, partially offset by a decrease in the average rate paid on in-market deposits and wholesale funding and increase in fees collected in lieu of interest. Excluding fees collected in lieu of interest and PPP loan interest income, net interest margin measured 3.33% for the second quarter of 2020, compared to 3.31% in the second quarter of 2019. Net interest margin decreased 27 basis points to 3.39% for the six months ended June 30, 2020 compared to 3.66% for the six months ended June 30, 2019. The decrease was primarily due to the decrease in average yield on loans and leases receivable and a decrease in fees in lieu of interest. These unfavorable variances were partially offset by a decrease in the average rate paid on in-market deposits and wholesale funding. Excluding fees collected in lieu of interest and PPP loan interest income, net interest margin measured 3.33% for the six months ended June 30, 2020 and June 30, 2019.

The Corporation incurred a $744,000 loss, recognized through non-interest expense, on the early extinguishment of $59.5 million in FHLB term advances late in the second quarter of 2020, as the Corporation lowered wholesale funding costs and improved the Corporation’s funding position. Management believes this strategy will help stabilize net interest margin with the expectation of a low interest rate environment for an extended period of time.

Management believes its success in growing in-market deposits, disciplined loan pricing, and increased production in our higher-yielding specialty finance lines of business will allow the Corporation to achieve a net interest margin of at least 3.50%, on average. 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, particularly given the nature of the Corporation’s asset-based lending business and the Corporation’s participation in the PPP. Net interest margin may also experience volatility due to events such as the collection of interest on loans previously in non-accrual status or the accumulation of significant short-term deposit inflows.

Provision for Loan and Lease Losses

We determine 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. Refer to Allowance for Loan and Lease Losses, below, for further information regarding our allowance for loan and lease loss methodology.    

The full impact of COVID-19 is unknown and rapidly evolving. It has caused substantial disruption in international and U.S. economies, markets, and employment. The outbreak is having a significant adverse impact on certain industries the Corporation serves, including retail, hospitality, entertainment, and restaurants and food services. Due to COVID-19 and the economic impact it could have on the Corporation’s loan portfolio, additional detail about certain exposure to stressed industries is included in the section titled COVID-19 Update, above.

Based on management’s current assessment of the increased inherent risk in the loan portfolio, the allowance for loan and leases losses increased $7.9 million, or 40.7%, compared to December 31, 2019. The provision for loan and lease losses totaled $5.5 million and $8.7 million for the three and six months ended June 30, 2020, respectively, compared to a provision benefit of $784,000 and $736,000 for the three and six months ended June 30, 2019, respectively. For the six months ended June 30, 2020, the increase in the allowance for loan and lease losses was in large part due to an increase in several qualitative factors after careful evaluation by management. Most notably, a $4.3 million increase was due to the economic conditions caused by the pandemic, including the increase in the unemployment rate, and an additional $953,000 stemmed from the other qualitative factors, such as management’s ongoing review and grading of the loan and lease portfolios, consideration of delinquency experience, and the level of loans and leases subject to more frequent review by management. Additionally, an increase in specific reserves of $2.1 million was driven by deterioration of two existing legacy SBA impaired relationships.

The legacy on-balance sheet SBA portfolio, defined as SBA 7(a) and Express loans originated in 2016 and prior, has been a source of elevated non-performing assets. Additional information on our legacy SBA portfolio is as follows:

50

	As of
	June 30, 2020		March 31, 2020		June 30, 2019
	(In Thousands)
Performing loans:
Off-balance sheet loans	$	28,843	$	31,212	$	44,385
On-balance sheet loans	16,554		17,935		23,406
Gross loans	45,397		49,147		67,791
Non-performing loans:
Off-balance sheet loans	1,640		4,887		8,294
On-balance sheet loans	9,725		13,833		16,940
Gross loans	11,365		18,720		25,234
Total loans:
Off-balance sheet loans	30,483		36,099		52,679
On-balance sheet loans	26,279		31,768		40,346
Gross loans	$	56,762	$	67,867	$	93,025

The addition of specific reserves on impaired loans represent new specific reserves established when collateral shortfalls or government guaranty deficiencies are present, while conversely the release of specific reserves represent the reduction of previously established reserves that are no longer required. Changes in the allowance for loan and lease losses due to subjective factor changes reflect management’s evaluation of the level of risk within the portfolio based upon several factors for each portfolio segment. Charge-offs in excess of previously established specific reserves require an additional provision for loan and lease losses to maintain the allowance for loan and lease losses at a level deemed appropriate by management. This amount is net of the release of any specific reserve that may have already been provided. Change in the inherent risk of the portfolio is primarily influenced by the overall growth in gross loans and leases and an analysis of loans previously charged off, as well as movement of existing loans and leases in and out of an impaired loan classification where a specific evaluation of a particular credit may be required rather than the application of a general reserve loss rate. Refer to Asset Quality, below, for further information regarding the overall credit quality of our loan and lease portfolio.

Because of the significant uncertainties related to the ultimate duration of the COVID-19 pandemic and its potential effects on clients and prospects, and on the national and local economy as a whole, there can be no assurances as to how the crisis may ultimately affect the Corporation’s loan portfolio.

Comparison of Non-Interest Income for the Three and Six Months Ended June 30, 2020 and 2019

Non-Interest Income

Non-interest income primarily consists of fees earned for private wealth management services, gains on sale of SBA loans, service charges on deposits, loan fee income, and commercial loan interest rate swap fee income. For the three months ended June 30, 2020 non-interest income increased by $514,000, or 8.9%, to $6.3 million from $5.8 million for the same period in 2019. For the six months ended June 30, 2020 non-interest income increased $2.3 million, or 21.9%, to $12.7 million from $10.4 million for the same period in 2019. Management continues to focus on revenue growth from multiple non-interest income sources in order to maintain a diversified revenue stream through greater contribution from fee-based revenues. Total non-interest income accounted for 25.1% and 26.2% of our total revenues for the three and six months ended June 30, 2020, respectively, compared to 25.6% and 23.2% for the three and six months ended June 30, 2019, respectively. Management believes the expected gradual expansion of our SBA lending program, fees from commercial loan interest rate swap activity with our commercial borrowers, and the geographic expansion of our private wealth management division will allow us to sustain our strategic target of 25% over the long-term.

51

The components of non-interest income were as follows:

	For the Three Months Ended June 30,											For the Six Months Ended June 30,
	2020			2019			$ Change			% Change		2020			2019			$ Change			% Change
	(Dollars in Thousands)
Private wealth management service fees	$	2,124		$	2,138		$	(14	)	(0.7	)%	$	4,235		$	4,065		$	170		4.2	%
Gain on sale of SBA loans	574			297			277			93.3		839			539			300			55.7
Service charges on deposits	829			743			86			11.6		1,647			1,520			127			8.4
Loan fees	451			464			(13		)	(2.8	)	936			877			59			6.7
Increase in cash surrender value of bank-owned life insurance	377			297			80			26.9		672			589			83			14.1
Net loss on sale of securities	—			(1		)	1			NM		(4		)	(1		)	(3		)	NM
Commercial loan swap fees	1,655			1,051			604			57.5		3,336			1,523			1,813			NM
Other non-interest income	309			816			(507		)	(62.1	)	1,072			1,331			(259		)	(19.5	)
Total non-interest income	$	6,319		$	5,805		$	514		8.9		$	12,733		$	10,443		$	2,290		21.9
Fee income ratio(1)	25.1		%	25.6		%						26.2		%	23.2		%

(1) Fee income ratio is total non-interest income, per the above table, divided by top line revenue (defined as net interest income plus non-interest income).

Private wealth management service fees decreased $14,000, or 0.7%, and increased $170,000, or 4.2% for the three and six months ended June 30, 2020, respectively, compared to the three and six months ended June 30, 2019. The decrease for the three month comparison period was mainly driven by a decline in equity market values stemming from the COVID-19 pandemic. The increase in the six month comparison period was driven by growth in assets under management and administration attributable to new client relationships. As of June 30, 2020, trust assets under management and administration totaled $1.873 billion, decreasing $18.8 million, or 1.0%, compared to $1.892 billion as of December 31, 2019 and increasing $118.4 million, or 6.7%, compared to $1.755 billion as of June 30, 2019.

Commercial loan interest rate swap fee income was $1.7 million and $3.3 million for the three and six months ended June 30, 2020, respectively, compared to $1.1 million and $1.5 million for the three and six months ended June 30, 2019, respectively. Interest rate swaps continue to be an attractive product for the Bank’s commercial borrowers, although associated fee income can vary period to period based on client demand and the interest rate environment in any given quarter.

Gains on sale of SBA loans increased $277,000, or 93.3%, and increased $300,000, or 55.7%, for the three and six months ended June 30, 2020, respectively, compared to the three and six months ended June 30, 2019. The Corporation’s pipeline continues to grow period over period and management believes the gain on sale of traditional SBA loans (i.e., SBA loans unrelated to PPP loans) will increase at a measured pace over time. Loans held for sale, consisting entirely of SBA loans closed but not fully funded, increased $7.3 million, or 116.0%, to $13.7 million compared to March 31, 2020.

Other non-interest income for the three and six months ended June 30, 2020 totaled $309,000 and $1.1 million, respectively, compared to $816,000 and $1.3 million, respectively, for three and six months ended June 30, 2019. Decreases in both periods of comparison were primarily due to gains recognized on end-of-term buyout agreements from the Corporation’s equipment financing business line during the three months ended June 30, 2019.

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Comparison of Non-Interest Expense for the Three and Six Months Ended June 30, 2020 and 2019

Non-Interest Expense    

The components of non-interest expense were as follows:

	For the Three Months Ended June 30,											For the Six Months Ended June 30,
	2020			2019			$ Change			% Change		2020			2019			$ Change			% Change
	(Dollars in Thousands)
Compensation	$	10,796		$	10,503		$	293		2.8	%	$	21,848		$	20,667		$	1,181		5.7	%
Occupancy	554			559			(5		)	(0.9	)	1,126			1,149			(23		)	(2.0	)
Professional fees	859			784			75			9.6		1,678			1,994			(316		)	(15.8	)
Data processing	710			689			21			3.0		1,386			1,269			117			9.2
Marketing	352			581			(229		)	(39.4	)	813			1,063			(250		)	(23.5	)
Equipment	304			272			32			11.8		595			661			(66		)	(10.0	)
Computer software	966			827			139			16.8		1,856			1,626			230			14.1
FDIC insurance	239			302			(63		)	(20.9	)	448			595			(147		)	(24.7	)
Collateral liquidation costs (recovery)	115			89			26			29.2		236			(1		)	237			NM
Net loss (gain) on foreclosed properties	348			(21		)	369			NM		450			(21		)	471			NM
Tax credit investment impairment	1,841			2,088			(247		)	(11.8	)	1,954			4,102			(2,148		)	(52.4	)
SBA recourse (benefit) provision	(30		)	113			(143		)	NM		(5		)	594			(599		)	NM
Loss on early extinguishment of debt	744			—			744			NM		744			—			744			NM
Other non-interest expense	545			678			(133		)	(19.6	)	1,359			1,508			(149		)	(9.9	)
Total non-interest expense	$	18,343		$	17,464		$	879		5.0		$	34,488		$	35,206		$	(718	)	(2.0	)
Total operating expense(1)	$	15,431		$	15,273		$	158		1.0		$	31,327		$	30,510		$	817		2.7
Full-time equivalent employees	283			275								283			275

(1) Total operating expense represents total non-interest expense, adjusted to exclude the impact of discrete items as previously defined in the non-GAAP efficiency ratio calculation, above.

Non-interest expense for the three months ended June 30, 2020 increased by $879,000, or 5.0%, to $18.3 million compared to $17.5 million for the same period in 2019. Non-interest expense for the six months ended June 30, 2020 decreased by $718,000, or 2.0%, to $34.5 million compared to $35.2 million for the same period in 2019. Operating expense, which excludes certain one-time and discrete items as defined in the Efficiency Ratio table above, increased $158,000, or 1.0%, to $15.4 million for the three months ended June 30, 2020 compared to $15.3 million for the same period in 2019. Operating expense increased $817,000, or 2.7%, to $31.3 million compared to $30.5 million for the same period in 2019. The increase in operating expense for both periods of comparison was primarily due to an increase in compensation expense and collateral liquidation costs, partially offset by a decrease in general business-related expenses due to the Corporation’s adherence to COVID-19 stay-at-home orders.    

Compensation expense for the three months ended June 30, 2020 was $10.8 million, an increase of $293,000, or 2.8%, compared to the three months ended June 30, 2019. Compensation expense for six months ended June 30, 2020 was $21.8 million, an increase of $1.2 million, or 5.7%, compared to the six months ended June 30, 2019. The increase in compensation expense in both periods of comparison reflects an increase in employees and annual merit increases. Average full-time equivalent employees were 281 for the quarter ended June 30, 2020 compared to 274 for the quarter ended June 30, 2019.

Collateral liquidation costs increased $26,000 to $115,000 for the three months June 30, 2020 compared to $89,000 for the three months ended June 30, 2019, and increased $237,000 to $236,000 for the six months ended June 30, 2020 compared to a recovery of $1,000 for the six months ended June 30, 2019. The first half of 2019 included the recovery of various workout expenses following the successful resolution of an impaired asset-based loan relationship.

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Tax credit investment impairment expense was $1.8 million and $2.0 million for the three and six months ended June 30, 2020, respectively, compared to $2.1 million and $4.1 million for the three and six months ended June 30, 2019, respectively. During the second quarter of 2020, the Corporation recognized a total of $1.7 million in expense due to the impairment of in-market federal historic tax credit investments, which corresponded with the recognition of a $2.5 million in tax credits during the quarter. During the six months ended June 30, 2019, the Corporation recognized $3.9 million in expense due to the impairment of in-market federal historic tax credit investments, which corresponded with the recognition of $5.3 million in tax credits. Management intends to continue actively pursuing in-market tax credit opportunities throughout 2020 and beyond.

SBA recourse benefit was $30,000 and $5,000 for the three and six months ended June 30, 2020, respectively, compared to recourse provision of $113,000 and $594,000 for the three and six months ended June 30, 2019, respectively. The decrease for the three and six months ended June 30, 2020 was primarily due to the declining balance of the outstanding legacy SBA loan sold portfolio and a reduction in the historic loss rate applied to the portfolio. Changes to SBA recourse reserves may be a source of non-interest expense volatility in future quarters, though the magnitude of this volatility should diminish over time as the outstanding balance of sold legacy SBA loans continues to decline. The total recourse reserve balance was $1.0 million, or 1.4% of total sold SBA loans outstanding, at June 30, 2020, compared to $1.3 million, or 1.8%, at December 31, 2019, and $2.1 million, or 2.7%, at June 30, 2019.

Income Taxes

Income tax benefit totaled $1.1 million for the six months ended June 30, 2020 compared to an income tax benefit of $1.9 million for the six months ended June 30, 2019. The income tax benefit for the six months ended June 30, 2020 primarily reflects the recognition of $2.5 million in tax credits which correspond with the $1.7 million impairment of relationship-based historic tax credit investments during the same period. The income tax benefit for the six months ended June 30, 2019 primarily reflects the recognition of $5.3 million in federal historic tax credits, which correspond with the $3.9 million impairment of relationship-based historic tax credit investments during the same period. The effective tax rate for the six months ended June 30, 2020, excluding the discrete items, was 18.5%.

Generally, the provision for income taxes is determined by applying an estimated annual effective income tax rate to income before taxes and adjusting for discrete items. The rate is based on the most recent annualized forecast of pre-tax income, book versus tax differences and tax credits, if any. If we conclude that a reliable estimated annual effective tax rate cannot be determined, the actual effective tax rate for the year-to-date period may be used. We re-evaluate the income tax rates each quarter. Therefore, the current projected effective tax rate for the entire year may change.

Financial Condition

General

Total assets increased by $372.0 million, or 17.7%, to $2.469 billion as of June 30, 2020 compared to $2.097 billion at December 31, 2019. The increase in total assets was primarily driven by PPP loan growth.

Short-Term Investments

Short-term investments decreased by $23.2 million, or 45.4%, to $27.8 million at June 30, 2020 from $51.0 million at December 31, 2019. Our short-term investments primarily consist of interest-bearing deposits held at the FRB and commercial paper. We value the safety and soundness provided by the FRB and therefore incorporate short-term investments in our on-balance sheet liquidity program. As of June 30, 2020, we did not hold any commercial paper and as of December 31, 2019, our total investment in commercial paper was $5.9 million. Due to current economic conditions, we decided to temporarily exit this short-term investment. We approach our decisions to purchase commercial paper with similar rigor and underwriting standards as applied to our loan and lease portfolio. The original maturities of the commercial paper are usually 60 days or less and provide an attractive yield in comparison to other short-term alternatives. These investments also assist us in maintaining a shorter duration of our overall investment portfolio which we believe is necessary to be in a position to benefit from an anticipated change in the yield curve level and shape. In general, the level of our short-term investments will be influenced by the timing of deposit gathering, scheduled maturities of wholesale deposits, funding of loan and lease growth when opportunities are presented, and the level of our securities portfolio. Please refer to the section titled Liquidity and Capital Resources for further discussion.

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Securities

Total securities, including available-for-sale and held-to-maturity, decreased by $4.3 million, or 2.1%, to $201.5 million at June 30, 2020 compared to $205.8 million at December 31, 2019. During the six months ended June 30, 2020, due to declining interest rates, we recognized unrealized gains of $4.2 million before income taxes through other comprehensive income. As of June 30, 2020 and December 31, 2019, our overall securities portfolio, including available-for-sale securities and held-to-maturity securities, had an estimated weighted-average expected maturity of 3.7 years and 4.4 years, respectively. Generally, our investment philosophy remains as stated in our most recent Annual Report on Form 10-K.

We use a third-party pricing service as our primary source of market prices for our securities portfolio. On a quarterly basis, we validate the reasonableness of prices received from this source through independent verification, data integrity validation primarily through comparison of current price to an expectation-based analysis of movement in prices based upon the changes in the related yield curves, and other market factors. No securities within our portfolio were deemed to be other-than-temporarily impaired as of June 30, 2020.

Loans and Leases Receivable    

Loans and leases receivable, net of allowance for loan and lease losses, increased by $334.3 million to $2.029 billion at June 30, 2020 from $1.695 billion at December 31, 2019 which was driven by the aforementioned PPP loan growth. Loans and leases receivable, net of PPP loans and the allowance for loan and lease losses, increased by $6.4 million, or 0.4%, to $1.701 billion at June 30, 2020 from December 31, 2019. Total commercial real estate (“CRE”) contributed to growth, increasing $68.1 million to $1.222 billion from $1.154 billion at December 31, 2019. Multifamily and construction loans were the largest contributors to CRE loan growth as of June 30, 2020, increasing $27.2 million and $24.3 million, respectively from December 31, 2019. Commercial and industrial (“C&I”) loans increased $277.8 million to $781.2 million from $503.4 million at December 31, 2019. Excluding PPP loans, C&I loans decreased $50.1 million to $453.3 million from $503.4 million at December 31, 2019.

There continues to be a concentration in CRE loans, however, in general our composition of total loans and leases has remained relatively consistent due to balanced growth across our product offerings. CRE loans represented 70.3% and 67.3% of our total loans, excluding PPP loans, as of June 30, 2020 and December 31, 2019, respectively. As of June 30, 2020, 18.8% of the CRE loans were owner-occupied CRE, compared to 19.6% as of December 31, 2019. We consider owner-occupied CRE more characteristic of the Corporation’s C&I portfolio as, in general, the client’s primary source of repayment is the cash flow from the operating entity occupying the commercial real estate property.

As mentioned above, excluding PPP loans, our C&I portfolio decreased $50.1 million, or 10.0%, to $453.3 million at June 30, 2020 from $503.4 million at December 31, 2019. Line of credit usage was $212.6 million as of June 30, 2020, down from $281.4 million at December 31, 2019, as line of credit usage significantly declined due to PPP loan proceeds. We will continue to emphasize actively pursuing C&I loans across the Corporation as this segment of our loan and lease portfolio provides an attractive yield commensurate with an appropriate level of credit risk and creates opportunities for in-market deposit, treasury management, and private wealth management relationships which generate additional fee revenue.

While we continue to experience significant competition from banks operating in our primary geographic areas, we remain committed to our underwriting standards and will not deviate from those standards for the sole purpose of growing our loan and lease portfolio. We continue to believe our new loan and lease activity to be adequate to replace normal amortization, allowing us to continue growing in future quarters, although this will temporarily be more challenging due to the current economic conditions. The types of loans and leases we originate and the various risks associated with these originations remain consistent with information previously outlined in our most recent Annual Report on Form 10-K.

Non-accrual loans increased $3.5 million, or 16.9%, to $24.1 million at June 30, 2020, compared to $20.6 million at December 31, 2019. The increase in non-accrual loans was principally due to the impairment of one $5.0 million commercial relationship and the repurchase of $3.6 million of impaired legacy SBA loans, partially offset by the $4.0 million payoff of two impaired legacy SBA loan relationships. The Corporation’s non-accrual loans as a percentage of total gross loans and leases measured 1.17% and 1.20% at June 30, 2020 and December 31, 2019, respectively. Non-accrual loans as a percentage of total gross loans and leases, excluding PPP loans, was 1.39% at June 30, 2020. Please refer to the sections titled COVID-19 Update and Asset Quality for additional information on credit quality.

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Deposits

As of June 30, 2020, deposits increased by $180.0 million, or 11.8% to $1.710 billion from $1.530 billion at December 31, 2019 primarily due to a $279.5 million increase in transaction accounts partially offset by decreases of $61.7 million and $17.7 million in wholesale deposits and money market accounts, respectively. Transaction account balances were inflated as of June 30, 2020 due to PPP loan proceeds. Management attributes the recent transition from money market accounts to reciprocal transaction accounts with full FDIC insurance to our clients’ preferences for safety and soundness versus interest rate amid the economic uncertainty created by the COVID-19 pandemic. Period-end deposit balances associated with in-market relationships will fluctuate based upon maturity of time deposits, client demands for the use of their cash, and our ability to maintain existing and new client relationships.

Our strategic efforts remain focused on adding in-market deposit relationships. We measure the success of in-market deposit gathering efforts based on the number and average balances of our deposit accounts as compared to ending balances due to the volatility of some of our larger relationships. The Bank’s average in-market deposits, consisting of all transaction accounts, money market accounts, and certificates of deposit, were approximately $1.468 billion, or 74.7% of total bank funding for the six months ended June 30, 2020, compared to $1.271 billion, or 71.3% of total bank funding for the year ended December 31, 2019.

FHLB Advances and Other Borrowings

As of June 30, 2020, FHLB advances and other borrowings increased by $145.6 million, or 45.6%, to $465.0 million from $319.4 million at December 31, 2019. While total wholesale funding as a percentage of total bank funding has decreased meaningfully overall due to significant in-market deposit growth, we continue to replace the majority of our maturing brokered certificates of deposit with FHLB advances at lower rates. Total bank funding is defined as total deposits plus FHLB advances, Federal Reserve Discount Window advances, and Federal Reserve PPPLF advances.

The Corporation incurred a $744,000 loss, recognized through non-interest expense, on the early extinguishment of $59.5 million in FHLB term advances late in the second quarter of 2020, as the Corporation lowered wholesale funding costs and improved the Corporation’s funding position. Management believes this strategy will help stabilize net interest margin with the expectation of a low interest rate environment for an extended period of time.

During the second quarter of 2020, management tested the availability of the Federal Reserve PPPLF due to the uncertainty of when PPP loans would be required to close and fund. As of June 30, 2020, the Corporation had one $29.6 million PPPLF advance outstanding.

Consistent with our funding philosophy to manage interest rate risk, we will use the most efficient and cost effective source of wholesale funds. We will utilize FHLB advances to the extent we maintain an adequate level of excess borrowing capacity for liquidity and contingency funding purposes and pricing remains favorable in comparison to the wholesale deposit alternative. At June 30, 2020, the ratio of wholesale funds to total bank funding was 24.7%. We will use FHLB advances and/or brokered certificates of deposit in specific maturity periods needed, typically three to five years, to match-fund fixed rate loans and effectively mitigate the interest rate risk measured through our asset/liability management process and to support asset growth initiatives while taking into consideration our operating goals and desired level of usage of wholesale funds. Please refer to the section titled Liquidity and Capital Resources, below, for further information regarding our use and monitoring of wholesale funds.

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Asset Quality

Impaired Assets

Total impaired assets consisted of the following at June 30, 2020 and December 31, 2019, respectively:

	June 30, 2020			December 31, 2019
	(Dollars in Thousands)
Non-accrual loans and leases
Commercial real estate:
Commercial real estate - owner occupied	$	7,503		$	4,032
Commercial real estate - non-owner occupied	—			—
Land development	1,049			1,526
Construction	—			—
Multi-family	—			—
1-4 family	333			333
Total non-accrual commercial real estate	8,885			5,891
Commercial and industrial	15,034			14,575
Direct financing leases, net	49			—
Consumer and other:
Home equity and second mortgages	—			—
Other	127			147
Total non-accrual consumer and other loans	127			147
Total non-accrual loans and leases	24,095			20,613
Foreclosed properties, net	1,389			2,919
Total non-performing assets	25,484			23,532
Performing troubled debt restructurings	49			140
Total impaired assets	$	25,533		$	23,672
Total non-accrual loans and leases to gross loans and leases	1.17		%	1.20		%
Total non-performing assets to gross loans and leases plus foreclosed properties, net	1.23			1.37
Total non-performing assets to total assets	1.03			1.12
Allowance for loan and lease losses to gross loans and leases	1.33			1.14
Allowance for loan and lease losses to non-accrual loans and leases	113.98			94.70

PPP loans outstanding as of June 30, 2020, were $327.9 million. There were no PPP loans outstanding as of December 31, 2019. The asset quality ratios, excluding PPP loans as they are fully guaranteed by the SBA, at June 30, 2020 and December 31, 2019, were as follows:

	June 30, 2020		December 31, 2019
Total non-accrual loans and leases to gross loans and leases	1.39	%	1.20	%
Total non-performing assets to gross loans and leases plus foreclosed properties, net	1.47		1.37
Total non-performing assets to total assets	1.19		1.12
Allowance for loan and lease losses to gross loans and leases	1.58		1.14

As of June 30, 2020 and December 31, 2019, $16.3 million and $15.6 million of non-accrual loans and leases were considered troubled debt restructurings, respectively. This increase is the result of ongoing workout efforts on previously identified impaired loans and does not include any new troubled debt restructurings related to the COVID-19 pandemic.

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We use a wide variety of available metrics to assess the overall asset quality of the portfolio and no one metric is used independently to make a final conclusion as to the asset quality of the portfolio. Non-performing assets increased $2.0 million, or 8.3%, to $25.5 million at June 30, 2020 from $23.5 million at December 31, 2019. The increase in non-performing assets was principally due to the impairment of one $5.0 million commercial relationship and the repurchase of $3.6 million of impaired legacy SBA loans, partially offset by $4.0 million in payoffs on legacy SBA loans and a $1.5 million decrease in foreclosed properties, net of impairment, principally due to the sale of one legacy SBA property.

We also monitor early stage delinquencies to assist in the identification of potential future problems. As of June 30, 2020, 99.64% of the loan and lease portfolio, excluding non-accrual loans and leases, was in a current payment status, compared to 99.76% at December 31, 2019. We also monitor asset quality through our established credit quality indicator categories. As we continue to actively monitor the credit quality of our loan and lease portfolios, we may identify additional loans and leases for which the borrowers or lessees are having difficulties making the required principal and interest payments based upon factors including, but not limited to, the inability to sell the underlying collateral, inadequate cash flow from the operations of the underlying businesses, liquidation events, or bankruptcy filings. We work proactively with our impaired loan borrowers to find solutions to difficult situations that are in the best interests of the Bank.

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The following represents additional information regarding our impaired loans and leases:

	As of and for the Six Months Ended June 30,				As of and for the Year Ended December 31,
	2020		2019		2019
	(In Thousands)
Impaired loans and leases with no impairment reserves required	$	10,742	$	7,184	$	7,312
Impaired loans and leases with impairment reserves required	13,402		16,525		13,441
Total impaired loans and leases	24,144		23,709		20,753
Less: Impairment reserve (included in allowance for loan and lease losses)	5,924		4,711		3,365
Net impaired loans and leases	$	18,220	$	18,998	$	17,388
Average impaired loans and leases	$	23,847	$	24,252	$	24,090
Foregone interest income attributable to impaired loans and leases	$	1,114	$	718	$	2,693
Less: Interest income recognized on impaired loans and leases	458		668		793
Net foregone interest income on impaired loans and leases	$	656	$	50	$	1,900

Non-performing assets also include foreclosed properties. A summary of foreclosed properties activity is as follows:

	As of and for the Six Months Ended June 30,					As of and for the Year Ended December 31,
	2020			2019		2019
	(In Thousands)
Balance at the beginning of the period	$	2,919		$	2,547	$	2,547
Transfer of loans and leases to foreclosed properties	80			—		596
Proceeds from sale of foreclosed properties	(1,160		)	—		—
Net loss on sale of foreclosed properties	(54		)	—		—
Impairment adjustments	(396		)	—		(224		)
Balance at the end of the period	$	1,389		$	2,547	$	2,919

Allowance for Loan and Lease Losses

The allowance for loan and lease losses increased $7.9 million, or 40.7%, from $19.5 million as of December 31, 2019 to $27.5 million as of June 30, 2020. The allowance for loan and lease losses as a percentage of gross loans and leases also increased from 1.14% as of December 31, 2019 to 1.33% as of June 30, 2020. The allowance for loan and lease losses as a percentage of gross loans and leases, excluding PPP loans, was 1.58% as of June 30, 2020. The increase in allowance for loan and lease losses as a percent of gross loans and leases was principally driven by COVID-19 and the economic impact it could have on the Corporation’s loan portfolio. For the six months ended June 30, 2020, the increase in the allowance for loan and lease losses was in large part due to an increase in several qualitative factors after careful evaluation by management. Most notably, a $4.3 million increase was due to the economic conditions caused by the pandemic, including the increase in the unemployment rate, and an additional $953,000 stemmed from the other qualitative factors, such as management’s ongoing review and grading of the loan and lease portfolios, consideration of delinquency experience, and the level of loans and leases subject to more frequent review by management. Additionally, an increase in specific reserves of $2.1 million was driven by deterioration of two existing legacy SBA impaired relationships.

There have been no substantive changes to our methodology for estimating the appropriate level of allowance for loan and lease loss reserves from what was previously outlined in our most recent Annual Report on Form 10-K. Please refer to the section titled COVID-19 Update for additional information.

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During the six months ended June 30, 2020, we recorded net charge-offs on impaired loans and leases of $707,000, comprised of $948,000 of charge-offs and $241,000 of recoveries. During the six months ended June 30, 2019, we recorded net recoveries on impaired loans and leases of approximately $130,000, comprised of $63,000 of charge-offs and $193,000 of recoveries. We will continue to experience some level of periodic charge-offs in the future as exit strategies are considered and executed, in particular as it relates to our commercial clients impacted by the COVID-19 pandemic. Loans and leases with previously established specific reserves may ultimately result in a charge-off under a variety of scenarios.

Based upon the application of our methodology for estimating the appropriate level of allowance for loan and lease loss reserves, which includes actively monitoring the asset quality and inherent risks within the loan and lease portfolio, management concluded that an allowance for loan and lease losses of $27.5 million, or 1.58% of total loans and leases excluding PPP loans, was appropriate as of June 30, 2020. Given ongoing complexities with current workout situations, including those related to the COVID-19 pandemic, further charge-offs and increased provisions for loan and lease losses may be recorded if additional facts and circumstances lead us to a different conclusion.

As of June 30, 2020 and December 31, 2019, our allowance for loan and lease losses to total non-accrual loans and leases was 113.98% and 94.70%, respectively. Impaired loans and leases exhibit weaknesses that inhibit repayment in compliance with the original terms of the note or lease. However, the measurement of impairment on loans and leases may not always result in a specific reserve included in the allowance for loan and lease losses. As part of the underwriting process, as well as our ongoing monitoring efforts, we try to ensure that we have sufficient collateral to protect our interest in the related loan or lease. As a result of this practice, a significant portion of our outstanding balance of non-performing loans or leases either does not require additional specific reserves or requires only a minimal amount of required specific reserve, as we believe the loans and leases are adequately collateralized as of the measurement period. In addition, management is proactive in recording charge-offs to bring loans to their net realizable value in situations where it is determined with certainty that we will not recover the entire amount of our principal. This practice may lead to a lower allowance for loan and lease losses to non-accrual loans and leases ratio as compared to our peers or industry expectations. As asset quality strengthens, our allowance for loan and lease losses is measured more through general characteristics, including historical loss experience, of our portfolio rather than through specific identification and we would therefore expect this ratio to rise. Conversely, if we identify further impaired loans or leases, this ratio could fall if the impaired loans are adequately collateralized and therefore require no specific or general reserve. Given our business practices and evaluation of our existing loan and lease portfolio, we believe this coverage ratio is appropriate for the probable losses inherent in our loan and lease portfolio as of June 30, 2020.

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

	As of and for the Three Months Ended June 30,						As of and for the Six Months Ended June 30,
	2020			2019			2020			2019
	(Dollars in Thousands)
Allowance at beginning of period	$	22,748		$	20,449		$	19,520		$	20,425
Charge-offs:
Commercial real estate:
Commercial real estate — owner occupied	(27		)	—			(27		)	—
Commercial real estate — non-owner occupied	—			—			—			—
Construction and land development	—			—			—			—
Multi-family	—			—			—			—
1-4 family	—			—			—			—
Commercial and industrial	(729		)	(13		)	(854		)	(61		)
Direct financing leases	(55		)	—			(55		)	—
Consumer and other:
Home equity and second mortgages	—			—			—			—
Other	(6		)	(2		)	(12		)	(2		)
Total charge-offs	(817		)	(15		)	(948		)	(63		)
Recoveries:
Commercial real estate:
Commercial real estate — owner occupied	—			—			1			1
Commercial real estate — non-owner occupied	2			71			2			72
Construction and land development	—			—			—			—
Multi-family	—			—			—			—
1-4 family	—			—			—			—
Commercial and industrial	62			73			238			92
Direct financing leases	—			—			—			—
Consumer and other:
Home equity and second mortgages	—			25			—			26
Other	—			—			—			2
Total recoveries	64			169			241			193
Net (charge-offs) recoveries	(753		)	154			(707		)	130
Provision for loan and lease losses	5,469			(784		)	8,651			(736		)
Allowance at end of period	$	27,464		$	19,819		$	27,464		$	19,819
Annualized net charge-offs (recoveries) as a percent of average gross loans and leases	0.15		%	(0.04		)%	0.08		%	(0.02		)%
Annualized net charge-offs (recoveries) as a percent of average gross loans and leases, excluding average PPP loans	0.17		%	(0.04		)%	0.08		%	(0.02		)%

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Liquidity and Capital Resources

The Corporation expects to meet its liquidity needs through existing cash on hand, established cash flow sources, its third party senior line of credit, and dividends received from the Bank. While the Bank is subject to certain generally applicable regulatory limitations regarding its ability to pay dividends to the Corporation, we do not believe that the Corporation will be adversely affected by these dividend limitations. The Corporation’s principal liquidity requirements at June 30, 2020 were the interest payments due on subordinated and junior subordinated notes. On July 24, 2020, the Bank’s Board of Directors declared a dividend in the aggregate amount of $2.0 million bringing year-to-date dividend declarations to $10.5 million. The capital ratios of the Corporation and its subsidiary continue to meet all applicable regulatory capital adequacy requirements. The Corporation’s and the Bank’s respective Boards of Directors and management teams adhere to the appropriate regulatory guidelines on decisions which affect their capital positions, including but not limited to, decisions relating to the payment of dividends and increasing indebtedness.

The Bank maintains liquidity by obtaining funds from several sources. The Bank’s primary source of funds are principal and interest payments on loans receivable and mortgage-related securities, deposits, and other borrowings, such as federal funds, FHLB advances, Federal Reserve Discount Window advances, and Federal Reserve PPPLF advances. The scheduled payments of loans and mortgage-related securities are generally a predictable source of funds. Deposit flows and loan prepayments, however, are greatly influenced by general interest rates, economic conditions, and competition. Please refer to the section titled COVID-19 Update for additional information on the Bank’s primary and secondary sources of available liquidity the during the COVID-19 pandemic.

On-balance sheet liquidity is a critical element to maintaining adequate liquidity to meet our cash and collateral obligations. We define our on-balance sheet liquidity as the total of our short-term investments, our unencumbered securities available-for-sale, and our unencumbered pledged loans. As of June 30, 2020 and December 31, 2019, our immediate on-balance sheet liquidity was $611.6 million and $438.2 million, respectively. At June 30, 2020 and December 31, 2019, the Bank had $27.3 million and $44.4 million on deposit with the FRB recorded in short-term investments, respectively. Any excess funds not used for loan funding or satisfying other cash obligations were maintained as part of our on-balance sheet liquidity in our interest-bearing accounts with the FRB, as we value the safety and soundness provided by the FRB. We plan to utilize excess liquidity to fund loan and lease portfolio growth, pay down maturing debt, allow run off of maturing wholesale certificates of deposit, or invest in securities to maintain adequate liquidity at an improved margin.

We had $530.4 million of outstanding wholesale funds at June 30, 2020, compared to $446.5 million of wholesale funds as of December 31, 2019, which represented 24.7% and 24.5%, respectively, of ending balance total bank funding. Wholesale funds include FHLB advances, Federal Reserve PPPLF advances, brokered certificates of deposit, and deposits gathered from internet listing services. Total bank funding is defined as total deposits plus FHLB advances and Federal Reserve PPPLF advances. We are committed to raising in-market deposits while utilizing wholesale funds to mitigate interest rate risk. Wholesale funds continue to be an efficient and cost effective source of funding for the Bank and allows it to gather funds across a larger geographic base at price levels and maturities that are more attractive than local time deposits when required to raise a similar level of in-market deposits within a short time period. Access to such deposits and borrowings allows us the flexibility to refrain from pursuing single service deposit relationships in markets that have experienced unfavorable pricing levels. In addition, the administrative costs associated with wholesale funds are considerably lower than those that would be incurred to administer a similar level of local deposits with a similar maturity structure. During the time frames necessary to accumulate wholesale funds in an orderly manner, we will use short-term FHLB advances to meet our temporary funding needs. The short-term FHLB advances will typically have terms of one week to one month to cover the overall expected funding demands.

Period-end in-market deposits increased $241.7 million to $1.621 billion at June 30, 2020 from $1.379 billion at December 31, 2019 as in-market deposit balances were primarily inflated due to PPP loan proceeds. Our in-market relationships remain stable; however, deposit balances associated with those relationships will fluctuate. We expect to establish new client relationships and continue marketing efforts aimed at increasing the balances in existing clients’ deposit accounts. Nonetheless, we will continue to use wholesale funds in specific maturity periods, typically three to five years, needed to effectively mitigate the interest rate risk measured through our asset/liability management process or in shorter time periods if in-market deposit balances decline. In order to provide for ongoing liquidity and funding, all of our wholesale funds are certificates of deposit which do not allow for withdrawal at the option of the depositor before the stated maturity (with the exception of deposits accumulated through the internet listing service which have the same early withdrawal privileges and fees as do our other in-market deposits) and FHLB advances with contractual maturity terms and no call provisions. The Bank limits the percentage of wholesale funds to total bank funds in accordance with liquidity policies approved by its Board. The Bank was in compliance with its policy limits as of June 30, 2020 and December 31, 2019.

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The Bank was able to access the wholesale funding market as needed at rates and terms comparable to market standards during the six month period ended June 30, 2020. In the event that there is a disruption in the availability of wholesale funds at maturity, the Bank has managed the maturity structure, in compliance with our approved liquidity policy, so at least one year of maturities could be funded through on-balance sheet liquidity. 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 June 30, 2020, the available liquidity was in excess of the stated policy minimum. We believe the Bank will also have access to the unused federal funds lines, cash flows from borrower repayments, and cash flows from security maturities. The Bank also has the ability to raise local market deposits by offering attractive rates to generate the level required to fulfill its liquidity needs.

The Bank is required by federal regulation to maintain sufficient liquidity to ensure safe and sound operations. We believe that the Bank has sufficient liquidity to match the balance of net withdrawable deposits and short-term borrowings in light of present economic conditions and deposit flows.

During the six months ended June 30, 2020, operating activities resulted in a net cash inflow of $2.1 million, which included net income and provision for loan and lease losses of $6.6 million and $8.7 million, respectively, partially offset by a net increase in loans originated for sale. Net cash used in investing activities for the six months ended June 30, 2020 was approximately $347.4 million which consisted of cash outflows to fund net loan growth and the purchase of $8.0 million in additional bank-owned life insurance, partially offset by a net reduction in securities. Net cash provided by financing activities resulted in a net cash inflow of $320.6 million for the six months ended June 30, 2020 primarily due to a net increase in FHLB advances, an increase in Federal Reserve PPPLF advances, and a net increase in deposits. Please refer to the Consolidated Statements of Cash Flows included in PART I., Item 1 for further details regarding significant sources of cash flow for the Corporation.

Contractual Obligations and Off-Balance Sheet Arrangements

As of June 30, 2020, there were no material changes to our contractual obligations and off-balance sheet arrangements disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019. We continue to believe that we have adequate capital and liquidity available from various sources to fund projected contractual obligations and commitments.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

The Corporation’s management, with the participation of the Corporation’s Chief Executive Officer and Chief Financial Officer, has evaluated the Corporation’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based upon that evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer have concluded that the Corporation’s disclosure controls and procedures were effective as of June 30, 2020.

Changes in Internal Control over Financial Reporting

There was no change in the Corporation’s internal controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) that occurred during the quarter ended June 30, 2020 that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

PART II. Other Information

Item 1. Legal Proceedings

From time to time, the Corporation and its subsidiaries are engaged in legal proceedings in the ordinary course of their respective businesses. Management believes that any liability arising from any such proceedings currently existing or threatened will not have a material adverse effect on the Corporation’s financial position, results of operations, or cash flows.

63

Item 1A. Risk Factors

There were no material changes to the risk factors previously disclosed in Item 1A. to Part I of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2019, as supplemented by Item IA. of Part II of the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) None.

(b) Not applicable.

(c) None.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

31.1	Certification of the Chief Executive Officer
31.2	Certification of the Chief Financial Officer
32	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350
101	The following financial information from First Business Financial Services, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019, (ii) Consolidated Statements of Income for the three and six months ended June 30, 2020 and 2019, (iii) Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2020 and 2019, (iv) Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2020 and 2019, (v) Consolidated Statements of Cash Flows for the three and six months ended June 30, 2020 and 2019, and (vi) the Notes to Unaudited Consolidated Financial Statements

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	FIRST BUSINESS FINANCIAL SERVICES, INC.
July 24, 2020	/s/ Corey A. Chambas
	Corey A. Chambas
	Chief Executive Officer
July 24, 2020	/s/ Edward G. Sloane, Jr.
	Edward G. Sloane, Jr.
	Chief Financial Officer
	(principal financial officer)

64

EX-31.1

Exhibit 31.1

Certifications

I, Corey A. Chambas, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of First Business Financial Services, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. Any significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Corey A. Chambas

Corey A. Chambas

Chief Executive Officer

July 24, 2020

EX-31.2

Exhibit 31.2

Certifications

I, Edward G. Sloane, Jr., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of First Business Financial Services, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. Any significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Edward G. Sloane, Jr.

Edward G. Sloane, Jr.

Chief Financial Officer

July 24, 2020

EX-32

Exhibit 32

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

Solely for the purposes of complying with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, we, the undersigned Chief Executive Officer and Chief Financial Officer, of First Business Financial Services, Inc., a Wisconsin Corporation (the “Corporation”), hereby certify, based on our knowledge that the Quarterly Report on Form 10-Q of the Corporation for the quarter ended June 30, 2020 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended, and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

/s/ Corey A. Chambas

Corey A. Chambas

Chief Executive Officer

July 24, 2020

/s/ Edward G. Sloane, Jr.

Edward G. Sloane, Jr.

Chief Financial Officer

July 24, 2020

XML

Cover Page - shares	6 Months Ended
	Jun. 30, 2020	Jul. 19, 2020
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Jun. 30, 2020
Document Transition Report	false
Entity File Number	001-34095
Entity Registrant Name	FIRST BUSINESS FINANCIAL SERVICES, INC.
Entity Incorporation, State or Country Code	WI
Entity Tax Identification Number	39-1576570
Entity Address, Address Line One	401 Charmany Drive
Entity Address, City or Town	Madison
Entity Address, State or Province	WI
Entity Address, Postal Zip Code	53719
City Area Code	608
Local Phone Number	238-8008
Title of 12(b) Security	Common Stock, $0.01 par value
Trading Symbol	FBIZ
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		8,529,006
Entity Central Index Key	0001521951
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q2
Amendment Flag	false

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Assets
Cash and due from banks	$ 14,552	$ 16,107
Short-term investments	27,839	50,995
Cash and cash equivalents	42,391	67,102
Securities available-for-sale, at fair value	171,680	173,133
Securities held-to-maturity, at amortized cost	29,826	32,700
Loans held for sale	13,672	5,205
Loans and leases receivable, net of allowance for loan and lease losses of $27,464 and $19,520, respectively	2,029,399	1,695,115
Premises and equipment, net	2,266	2,557
Foreclosed properties	1,389	2,919
Right-of-use assets	6,272	6,906
Bank-owned life insurance	51,433	42,761
Federal Home Loan Bank stock, at cost	13,470	7,953
Goodwill and other intangible assets	11,925	11,922
Accrued interest receivable and other assets	95,091	48,506
Total assets	2,468,814	2,096,779
Liabilities and Stockholders’ Equity
Deposits	1,710,375	1,530,379
Federal Home Loan Bank advances and other borrowings	465,007	319,382
Junior subordinated notes	10,054	10,047
Lease liabilities	6,877	7,541
Accrued interest payable and other liabilities	78,939	35,274
Total liabilities	2,271,252	1,902,623
Stockholders’ equity:
Preferred stock, $0.01 par value, 2,500,000 shares authorized, none issued or outstanding	0	0
Common stock, $0.01 par value, 25,000,000 shares authorized, 9,231,761 and 9,162,720 shares issued, 8,575,134 and 8,566,044 shares outstanding at June 30, 2020 and December 31, 2019, respectively	92	92
Additional paid-in capital	82,121	81,188
Retained earnings	132,882	129,105
Accumulated other comprehensive loss	(1,186)	(1,348)
Treasury stock, 656,627 and 596,676 shares at June 30, 2020 and December 31, 2019, respectively, at cost	(16,347)	(14,881)
Total stockholders’ equity	197,562	194,156
Total liabilities and stockholders’ equity	$ 2,468,814	$ 2,096,779

XML

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Statement of Financial Position [Abstract]
Allowance for loan and lease losses	$ 27,464	$ 19,520
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	2,500,000	2,500,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	25,000,000	25,000,000
Common stock, shares issued	9,231,761	9,162,720
Common stock, shares outstanding	8,575,134	8,566,044
Treasury stock, shares	656,627	596,676

XML

Consolidated Statements of Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Interest income
Loans and leases	$ 21,548	$ 23,904	$ 43,397	$ 48,111
Securities	1,070	1,175	2,258	2,270
Short-term investments	143	230	477	608
Total interest income	22,761	25,309	46,132	50,989
Interest expense
Deposits	1,924	6,258	6,040	12,054
Federal Home Loan Bank advances and other borrowings	1,672	1,922	3,600	3,777
Junior subordinated notes	277	277	555	552
Total interest expense	3,873	8,457	10,195	16,383
Net interest income	18,888	16,852	35,937	34,606
Provision for loan and lease losses	5,469	(784)	8,651	(736)
Net interest income after provision for loan and lease losses	13,419	17,636	27,286	35,342
Non-interest income
Private wealth management service fees	2,124	2,138	4,235	4,065
Gain on sale of Small Business Administration loans	574	297	839	539
Service charges on deposits	829	743	1,647	1,520
Loan fees	451	464	936	877
Increase in cash surrender value of bank-owned life insurance	377	297	672	589
Net loss on sale of securities	0	(1)	(4)	(1)
Commercial loan swap fees	1,655	1,051	3,336	1,523
Other non-interest income	309	816	1,072	1,331
Total non-interest income	6,319	5,805	12,733	10,443
Non-interest expense
Compensation	10,796	10,503	21,848	20,667
Occupancy	554	559	1,126	1,149
Professional fees	859	784	1,678	1,994
Data processing	710	689	1,386	1,269
Marketing	352	581	813	1,063
Equipment	304	272	595	661
Computer software	966	827	1,856	1,626
FDIC insurance	239	302	448	595
Collateral liquidation costs (recovery)	115	89	236	(1)
Net loss (gain) on foreclosed properties	(348)	21	(450)	21
Tax credit investment impairment	1,841	2,088	1,954	4,102
SBA recourse (benefit) provision	(30)	113	(5)	594
Loss on early extinguishment of debt	744	0	744	0
Other non-interest expense	545	678	1,359	1,508
Total non-interest expense	18,343	17,464	34,488	35,206
Income before income tax benefit	1,395	5,977	5,531	10,579
Income tax benefit	(1,928)	(595)	(1,070)	(1,893)
Net income	$ 3,323	$ 6,572	$ 6,601	$ 12,472
Earnings per common share
Basic	$ 0.38	$ 0.75	$ 0.77	$ 1.43
Diluted	0.38	0.75	0.77	1.43
Dividends declared per share	$ 0.165	$ 0.15	$ 0.33	$ 0.30

XML

Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Statement of Comprehensive Income [Abstract]
Net income	$ 3,323	$ 6,572	$ 6,601	$ 12,472
Other comprehensive income, before tax
Unrealized securities (losses) gains arising during the period	(264)	1,928	4,237	3,239
Reclassification adjustment for net loss realized in net income	0	1	4	1
Amortization of net unrealized losses transferred from available-for-sale	10	14	20	28
Unrealized losses on interest rate swaps arising during the period	(418)	(1,514)	(4,043)	(2,464)
Income tax benefit (expense)	171	(110)	(56)	(206)
Total other comprehensive (loss) income	(501)	319	162	598
Comprehensive income	$ 2,822	$ 6,891	$ 6,763	$ 13,070

XML

Consolidated Statements of Changes in Stockholders' Equity (Unaudited) - USD ($) $ in Thousands	Total	Common stock	Additional paid-in capital	Retained earnings	Accumulated Other Comprehensive Loss	Treasury stock
Common shares outstanding at Dec. 31, 2018		8,785,480
Beginning balance at Dec. 31, 2018	$ 180,707	$ 91	$ 79,623	$ 110,310	$ (1,684)	$ (7,633)
Net income	5,899			5,899
Other comprehensive income (loss)	279				279
Share-based compensation - restricted shares, shares issued		49,730
Share-based compensation - restricted shares	318	$ 0	318
Cash dividends ($0.165 per share during 2020 and $0.15 per share during 2019)	(1,312)			(1,312)
Treasury stock purchased, shares		(70,074)
Treasury stock purchased	(1,478)					(1,478)
Common shares outstanding at Mar. 31, 2019		8,765,136
Ending balance at Mar. 31, 2019	185,100	$ 91	79,941	115,584	(1,405)	(9,111)
Common shares outstanding at Dec. 31, 2018		8,785,480
Beginning balance at Dec. 31, 2018	180,707	$ 91	79,623	110,310	(1,684)	(7,633)
Net income	12,472
Common shares outstanding at Jun. 30, 2019		8,699,456
Ending balance at Jun. 30, 2019	188,855	$ 91	80,351	120,841	(1,086)	(11,342)
Cumulative Effect of New Accounting Principle in Period of Adoption	687			687
Common shares outstanding at Mar. 31, 2019		8,765,136
Beginning balance at Mar. 31, 2019	185,100	$ 91	79,941	115,584	(1,405)	(9,111)
Net income	6,572			6,572
Other comprehensive income (loss)	319				319
Share-based compensation - restricted shares, shares issued		31,151
Share-based compensation - restricted shares	410	$ 0	410
Cash dividends ($0.165 per share during 2020 and $0.15 per share during 2019)	(1,315)			(1,315)
Treasury stock purchased, shares		(96,831)
Treasury stock purchased	(2,231)					(2,231)
Common shares outstanding at Jun. 30, 2019		8,699,456
Ending balance at Jun. 30, 2019	$ 188,855	$ 91	80,351	120,841	(1,086)	(11,342)
Common shares outstanding at Dec. 31, 2019	8,566,044	8,566,044
Beginning balance at Dec. 31, 2019	$ 194,156	$ 92	81,188	129,105	(1,348)	(14,881)
Net income	3,278			3,278
Other comprehensive income (loss)	663				663
Share-based compensation - restricted shares, shares issued		63,684
Share-based compensation - restricted shares	417	$ 0	417
Cash dividends ($0.165 per share during 2020 and $0.15 per share during 2019)	(1,410)			(1,410)
Treasury stock purchased, shares		(58,594)
Treasury stock purchased	(1,447)					(1,447)
Common shares outstanding at Mar. 31, 2020		8,571,134
Ending balance at Mar. 31, 2020	$ 195,657	$ 92	81,605	130,973	(685)	(16,328)
Common shares outstanding at Dec. 31, 2019	8,566,044	8,566,044
Beginning balance at Dec. 31, 2019	$ 194,156	$ 92	81,188	129,105	(1,348)	(14,881)
Net income	$ 6,601
Common shares outstanding at Jun. 30, 2020	8,575,134	8,575,134
Ending balance at Jun. 30, 2020	$ 197,562	$ 92	82,121	132,882	(1,186)	(16,347)
Common shares outstanding at Mar. 31, 2020		8,571,134
Beginning balance at Mar. 31, 2020	195,657	$ 92	81,605	130,973	(685)	(16,328)
Net income	3,323			3,323
Other comprehensive income (loss)	(501)				(501)
Share-based compensation - restricted shares, shares issued		5,357
Share-based compensation - restricted shares	516	$ 0	516
Cash dividends ($0.165 per share during 2020 and $0.15 per share during 2019)	(1,414)			(1,414)
Treasury stock purchased, shares		(1,357)
Treasury stock purchased	$ (19)					(19)
Common shares outstanding at Jun. 30, 2020	8,575,134	8,575,134
Ending balance at Jun. 30, 2020	$ 197,562	$ 92	$ 82,121	$ 132,882	$ (1,186)	$ (16,347)

XML

Consolidated Statements of Changes in Stockholders' Equity (Parenthetical) - $ / shares	3 Months Ended				6 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2020	Jun. 30, 2019
Common stock, cash dividends, per share, declared	$ 0.165	$ 0.165	$ 0.15	$ 0.15	$ 0.33	$ 0.30

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Operating activities
Net income	$ 6,601	$ 12,472
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes, net	(133)	(1,245)
Impairment of Tax Credit Investments	1,954	4,102
Provision for loan and lease losses	8,651	(736)
SBA recourse (benefit) provision	(5)	594
Depreciation, amortization and accretion, net	1,637	1,437
Share-based compensation	933	728
Net loss on sale of securities	(4)	(1)
Increase in bank-owned life insurance policies	(672)	(589)
Origination of loans held for sale	39,931	29,116
Sale of loans originated for sale	32,303	30,156
Gain on sale of SBA loans	(839)	(539)
Net loss (gain) on foreclosed properties, including impairment valuation	(450)	21
Excess tax benefit from share-based compensation	(19)	(11)
Payments on operating leases	(775)	(759)
Payments received on operating leases	56	0
Net increase in accrued interest receivable and other assets	50,951	17,612
Net increase in accrued interest payable and other liabilities	42,042	12,435
Net cash provided by operating activities	1,306	11,297
Investing activities
Proceeds from maturities, redemptions, and paydowns of available-for-sale securities	22,457	12,480
Proceeds from maturities, redemptions, and paydowns of held-to-maturity securities	2,844	3,176
Proceeds from sale of available-for-sale securities	839	2,026
Purchases of available-for-sale securities	(17,753)	(31,934)
Proceeds from sale of foreclosed properties	1,160	0
Net increase in loans and leases	(343,016)	(102,162)
Investments in limited partnerships	0	1,250
Returns of investments in limited partnerships	0	280
Investment in historic development entities	(259)	(2,137)
Distribution from historic development entities	30	0
Investment in Federal Home Loan Bank stock	(6,892)	(2,020)
Proceeds from the sale of Federal Home Loan Bank stock	1,375	2,540
Purchases of leasehold improvements and equipment, net	(141)	(11)
Purchases of bank-owned life insurance policies	8,000	0
Net cash used in investing activities	(347,356)	(119,012)
Financing activities
Net increase in deposits	179,996	74,346
Proceeds from Federal Home Loan Bank advances	498,500	265,000
Repayment of Federal Home Loan Bank advances	(383,243)	(266,000)
Loss on early extinguishment of debt	744	0
Proceeds from the Federal Paycheck Protection Program Lending Facility, Investing Activities	29,605	0
Net increase in long-term borrowed funds	27	35
Cash dividends paid	(2,824)	(2,628)
Purchase of treasury stock	(1,466)	(3,709)
Net cash provided by financing activities	321,339	67,044
Net decrease in cash and cash equivalents	(24,711)	(40,671)
Cash and cash equivalents at the beginning of the period	67,102	86,546
Cash and cash equivalents at the end of the period	42,391	45,875
Cash paid during the period for:
Interest paid on deposits and borrowings	11,064	15,744
Income taxes paid	1,356	1,308
Non-cash investing and financing activities:
Transfer from loans and leases to foreclosed properties	$ 80	$ 93

XML

Nature of Operations and Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations

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

Basis of Presentation

The accompanying unaudited Consolidated Financial Statements were prepared in accordance with GAAP and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Corporation’s Consolidated Financial Statements and footnotes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2019. The unaudited Consolidated Financial Statements include the accounts of the Corporation and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. In accordance with the provisions of Accounting Standards Codification (“ASC”) Topic 810, the Corporation’s ownership interest in FBFS Statutory Trust II (“Trust II”) has not been consolidated into the financial statements.

Management of the Corporation is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Material estimates that could significantly change in the near-term include the value of securities and interest rate swaps, level of the allowance for loan and lease losses, lease residuals, property under operating leases, goodwill, level of the Small Business Administration (“SBA”) recourse reserve, and income taxes. The results of operations for the three and six months ended June 30, 2020, are not necessarily indicative of results that may be expected for any other interim period or the entire fiscal year ending December 31, 2020. Certain amounts in prior periods may have been reclassified to conform to the current presentation. Subsequent events have been evaluated through the date of the issuance of the unaudited Consolidated Financial Statements. No significant subsequent events have occurred through this date requiring adjustment to the financial statements or disclosures.

The Corporation has not changed its significant accounting and reporting policies from those disclosed in the Corporation’s Form 10-K for the year ended December 31, 2019.

Recent Accounting Pronouncements

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

standard. Management has gathered all necessary data and reviewed potential methods to calculate the expected credit losses. Management is currently calculating sample expected loss computations and developing the allowance methodology and assumptions that will be used under the new standard. Management will continue to progress on its implementation project plan and improve the Corporation’s approach throughout the deferral period.

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Significant Events

6 Months Ended

Jun. 30, 2020

Significant Events [Abstract]

Significant Events

Significant Events

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

The full impact of COVID-19 is unknown and rapidly evolving. It has caused substantial disruption in international and U.S. economies, markets, and employment. The outbreak is having a significant adverse impact on certain industries the Corporation serves, including retail, hospitality, entertainment, and restaurants and food services. As of June 30, 2020, the Corporation’s aggregate outstanding exposure in these segments was $185.1 million, or 10.7% of the Corporation’s gross loans and leases. Based on management’s current assessment of the increased inherent risk in the loan portfolio, the allowance for loan and leases losses increased $7.9 million, or 40.7%, compared to December 31, 2019. The increase in the allowance for loan and lease losses was in large part due to an increase in several qualitative factors. Most notably, a $4.3 million increase was due to the economic conditions caused by the pandemic, including the increase in the unemployment rate, and an additional $953,000 stemmed from the other qualitative factors, such as management’s ongoing review and grading of the loan and lease portfolios, consideration of delinquency experience, and the level of loans and leases subject to more frequent review by management. Because of the significant uncertainties related to the ultimate duration of the COVID-19 pandemic and its effects on clients and prospects, and on the national and local economy as a whole, there can be no assurances as to how the crisis may ultimately affect the Corporation’s loan portfolio.

The Corporation provided loan modifications up to six months to certain borrowers impacted by COVID-19 who were current in their payments at the inception of the Corporation’s loan modification program. As of June 30, 2020, the Corporation had processed 448 deferral requests, representing $323.2 million in total loans outstanding. Loan deferrals of six months accounted for 60.2% of the total $323.2 million in deferral requests and the remaining balance were primarily for three months. For loans subject to the program, each borrower is required to resume making regularly scheduled loan payment at the end of the modification period and the deferred amounts will be moved to the end of the loan term. The loan will not be reported as past due during the deferral period. 

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act is a $2 trillion stimulus package to provide relief to U.S. businesses and consumers struggling as a result of the pandemic. A provision in the CARES Act includes a $349 billion fund for the creation of the Paycheck Protection Program (“PPP”) through the Small Business Administration (“SBA”) and Treasury Department. On April 24, 2020, the Paycheck Protection Program and Health Care Enhancement Act was signed into law, adding an additional $320 billion of funding to the PPP. The PPP is intended to provide loans to small businesses to pay their employees, rent, mortgage interest, and utilities. The loans may be forgiven conditioned upon the client providing payroll documentation evidencing their compliant use of funds and otherwise complying with the terms of the program. The Corporation began accepting and processing applications for loans under the PPP on April 3, 2020. As of June 30, 2020, the Corporation had processed over 700 applications from existing and new clients, disbursed $327.9 million in funds, and received processing fee income from the SBA of $8.7 million. The processing fee income is deferred and amortized over the contractual life of the loan, or accelerated at forgiveness, as an adjustment of yield using the interest method. During the three months ended June 30, 2020, $859,000 was recognized in loans and leases interest income in the unaudited Consolidated Statements of Income. The SBA provides a guaranty to the lender of 100% of principal and interest, unless the lender violated an obligation under the agreement. As loan losses are expected to be immaterial, if any at all, due to the guaranty, management excluded the PPP loans from the allowance for loan and lease losses calculation. Management funded these short-term loans through a combination of excess cash held at the Federal Reserve and from an increase in in-market deposits.

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Earnings Per Common Share

6 Months Ended

Jun. 30, 2020

Earnings Per Share [Abstract]

Earnings Per Common Share

Earnings per Common Share

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

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2020		2019		2020		2019
	(Dollars in Thousands, Except Share Data)
Basic earnings per common share
Net income	$	3,323	$	6,572	$	6,601	$	12,472
Less: earnings allocated to participating securities	93		151		173		239
Basic earnings allocated to common stockholders	$	3,230	$	6,421	$	6,428	$	12,233
Weighted-average common shares outstanding, excluding participating securities	8,392,197		8,569,581		8,379,696		8,584,444
Basic earnings per common share	$	0.38	$	0.75	$	0.77	$	1.43
Diluted earnings per common share
Earnings allocated to common stockholders, diluted	$	3,230	$	6,421	$	6,428	$	12,233
Weighted-average diluted common shares outstanding, excluding participating securities	8,392,197		8,569,581		8,379,696		8,584,444
Diluted earnings per common share	$	0.38	$	0.75	$	0.77	$	1.43

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Share-Based Compensation

6 Months Ended

Jun. 30, 2020

Share-based Payment Arrangement [Abstract]

Share-Based Compensation

Share-Based Compensation

The Corporation adopted the 2019 Equity Incentive Plan (the “Plan”) during the quarter ended June 30, 2019. The Plan is administered by the Compensation Committee of the Board of Directors of the Corporation and provides for the grant of equity ownership opportunities through incentive stock options and nonqualified stock options, restricted stock, restricted stock units, dividend equivalent units, and any other type of award permitted by the Plan. As of June 30, 2020, 147,489 shares were available for future grants under the Plan. Shares covered by awards that expire, terminate, or lapse will again be available for the grant of awards under the Plan. The Corporation may issue new shares and shares from its treasury stock for shares delivered under the Plan.

Restricted Stock

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

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

Restricted stock activity for the year ended December 31, 2019 and the six months ended June 30, 2020 was as follows:

	Number of Restricted Shares/Units		Weighted Average Grant-Date Fair Value
Nonvested balance as of January 1, 2019	131,621		$	21.02
Granted	95,265		23.64
Vested	(48,207	)	20.62
Forfeited	(1,744	)	23.67
Nonvested balance as of December 31, 2019	176,935		22.51
Granted (1)	75,345		26.10
Vested	(18,197	)	22.66
Forfeited	(6,304	)	22.14
Nonvested balance as of June 30, 2020	227,779		$	23.98

(1) The number of restricted shares/units shown includes the shares that would be granted if the target level of performance is achieved related to the performance based restricted stock units. The number of shares actually issued may vary.

As of June 30, 2020, the Corporation had $4.3 million of unvested compensation expense, which the Corporation expects to recognize over a weighted-average period of approximately 2.50 years.

Share-based compensation expense related to restricted stock included in the unaudited Consolidated Statements of Income was as follows:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2020		2019		2020		2019
	(In Thousands)
Share-based compensation expense	$	516	$	410	$	933	$	728

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Securities

6 Months Ended

Jun. 30, 2020

Investments, Debt and Equity Securities [Abstract]

Securities

Securities

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

	As of June 30, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Available-for-sale:
U.S. government agency securities - government-sponsored enterprises	$	22,023	$	15	$	(68	)	$	21,970
Municipal securities	11,081		390		—			11,471
Residential mortgage-backed securities - government issued	12,296		587		—			12,883
Residential mortgage-backed securities - government-sponsored enterprises	101,005		3,084		—			104,089
Commercial mortgage-backed securities - government issued	6,161		205		—			6,366
Commercial mortgage-backed securities - government-sponsored enterprises	11,854		750		—			12,604
Other securities	2,205		92		—			2,297
	$	166,625	$	5,123	$	(68	)	$	171,680

	As of December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Available-for-sale:
U.S. government agency securities - government-sponsored enterprises	$	23,616	$	152	$	(10	)	$	23,758
Municipal securities	160		—		—			160
Residential mortgage-backed securities - government issued	16,119		234		(5		)	16,348
Residential mortgage-backed securities - government-sponsored enterprises	111,561		847		(406		)	112,002
Commercial mortgage-backed securities - government issued	6,705		45		(87		)	6,663
Commercial mortgage-backed securities - government-sponsored enterprises	11,953		23		(9		)	11,967
Other securities	2,205		30		—			2,235
	$	172,319	$	1,331	$	(517	)	$	173,133

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

	As of June 30, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Held-to-maturity:
Municipal securities	$	18,608	$	480	$	(26	)	$	19,062
Residential mortgage-backed securities - government issued	4,789		148		—			4,937
Residential mortgage-backed securities - government-sponsored enterprises	4,416		163		—			4,579
Commercial mortgage-backed securities - government-sponsored enterprises	2,013		296		—			2,309
	$	29,826	$	1,087	$	(26	)	$	30,887

	As of December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Held-to-maturity:
Municipal securities	$	19,727	$	335	$	(8	)	$	20,054
Residential mortgage-backed securities - government issued	5,776		19		(9		)	5,786
Residential mortgage-backed securities - government-sponsored enterprises	5,183		51		(23		)	5,211
Commercial mortgage-backed securities - government-sponsored enterprises	2,014		123		—			2,137
	$	32,700	$	528	$	(40	)	$	33,188

U.S. government agency securities - government-sponsored enterprises represent securities issued by the Federal National Mortgage Association (“FNMA”) and the SBA. Municipal securities include securities issued by various municipalities located primarily within Wisconsin and are primarily general obligation bonds that are tax-exempt in nature. Residential and commercial mortgage-backed securities - government issued represent securities guaranteed by the Government National Mortgage Association. Residential and commercial mortgage-backed securities - government-sponsored enterprises include securities guaranteed by the Federal Home Loan Mortgage Corporation, FNMA, and the FHLB. Other securities represent certificates of deposit of insured banks and savings institutions with an original maturity greater than three months. There were no sales of available-for-sale securities that occurred during the three months ended June 30, 2020 and one sale that occurred during the six months ended June 30, 2020. There were nine sales of available-for-sale securities that occurred during the three and six months ended June 30, 2019.

At June 30, 2020 and December 31, 2019, securities with a fair value of $182.0 million and $30.3 million, respectively, were pledged to secure various obligations, including interest rate swap contracts, outstanding FHLB advances, additional FHLB availability, the Federal Reserve Discount Window, and municipal deposits. At June 30, 2020, pledged securities with a fair value of $106.9 million were unencumbered. No pledged securities were unencumbered as of December 31, 2019.

The amortized cost and fair value of securities by contractual maturity at June 30, 2020 are shown below. Actual maturities may differ from contractual maturities because issuers have the right to call or prepay certain obligations with or without call or prepayment penalties.

	Available-for-Sale				Held-to-Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In Thousands)
Due in one year or less	$	1,000	$	1,003	$	2,556	$	2,578
Due in one year through five years	8,650		8,969		12,346		12,621
Due in five through ten years	35,048		36,655		11,283		11,904
Due in over ten years	121,927		125,053		3,641		3,784
	$	166,625	$	171,680	$	29,826	$	30,887

The tables below show the Corporation’s gross unrealized losses and fair value of available-for-sale investments aggregated by investment category and length of time that individual investments were in a continuous loss position at June 30, 2020 and December 31, 2019. At June 30, 2020, the Corporation held six available-for-sale securities that were in an unrealized loss position. Such securities have not experienced credit rating downgrades; however, they have generally declined in value due to the current interest rate environment. At June 30, 2020, the Corporation held zero available-for-sale securities that had been in a continuous unrealized loss position for twelve months or greater.

The Corporation also has not specifically identified available-for-sale securities in a loss position that it intends to sell in the near term and does not believe that it will be required to sell any such securities. The Corporation reviews its securities on a quarterly basis to monitor its exposure to other-than-temporary impairment. Consideration is given to such factors as the length of time and extent to which the security has been in an unrealized loss position, changes in security ratings, and an evaluation of the present value of expected future cash flows, if necessary. Based on the Corporation’s evaluation, it is expected that the Corporation will recover the entire amortized cost basis of each security. Accordingly, no other-than-temporary impairment was recorded in the unaudited Consolidated Statements of Income for the three and six months ended June 30, 2020 and 2019.

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

	As of June 30, 2020
	Less than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
Available-for-sale:
U.S. government agency securities - government-sponsored enterprises	$	16,403	$	68	$	—	$	—	$	16,403	$	68

	As of December 31, 2019
	Less than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
Available-for-sale:
U.S. government agency securities - government-sponsored enterprises	$	4,363	$	10	$	—	$	—	$	4,363	$	10
Residential mortgage-backed securities - government issued	4,619		5		—		—		4,619		5
Residential mortgage-backed securities - government-sponsored enterprises	36,972		253		11,304		153		48,276		406
Commercial mortgage-backed securities - government issued	—		—		4,727		87		4,727		87
Commercial mortgage-backed securities - government-sponsored enterprises	2,245		4		1,047		5		3,292		9
	$	48,199	$	272	$	17,078	$	245	$	65,277	$	517

The tables below show the Corporation’s gross unrealized losses and fair value of held-to-maturity investments, aggregated by investment category and length of time that individual investments were in a continuous loss position at June 30, 2020 and December 31, 2019. At June 30, 2020, the Corporation held two held-to-maturity securities that were in an unrealized loss position. Such securities have not experienced credit rating downgrades; however, they have generally declined in value due to the current interest rate environment. There were no held-to-maturity securities that had been in a continuous loss position for twelve months or greater as of June 30, 2020. It is expected that the Corporation will recover the entire amortized cost basis of each held-to-maturity security based upon an evaluation of aforementioned factors. Accordingly, no other-than-temporary impairment was recorded in the unaudited Consolidated Statements of Income for the three and six months ended June 30, 2020 and 2019.

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

	As of June 30, 2020
	Less than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
Held-to-maturity:
Municipal securities	$	479	$	26	$	—	$	—	$	479	$	26

	As of December 31, 2019
	Less than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
Held-to-maturity:
Municipal securities	$	499	$	8	$	—	$	—	$	499	$	8
Residential mortgage-backed securities - government issued	—		—		1,887		9		1,887		9
Residential mortgage-backed securities - government-sponsored enterprises	1,364		5		2,144		18		3,508		23
	$	1,863	$	13	$	4,031	$	27	$	5,894	$	40

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Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses

6 Months Ended

Jun. 30, 2020

Receivables [Abstract]

Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses

Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses

Loan and lease receivables consist of the following:

	June 30, 2020		December 31, 2019
	(In Thousands)
Commercial real estate:
Commercial real estate — owner occupied	$	229,994	$	226,614
Commercial real estate — non-owner occupied	533,211		516,652
Land development	44,299		51,097
Construction	133,375		109,057
Multi-family	244,496		217,322
1-4 family	36,823		33,359
Total commercial real estate	1,222,198		1,154,101
Commercial and industrial	781,239		503,402
Direct financing leases, net	25,525		28,203
Consumer and other:
Home equity and second mortgages	6,706		7,006
Other	29,737		22,664
Total consumer and other	36,443		29,670
Total gross loans and leases receivable	2,065,405		1,715,376
Less:
Allowance for loan and lease losses	27,464		19,520
Deferred loan fees	8,542		741
Loans and leases receivable, net	$	2,029,399	$	1,695,115

The total amount of the Corporation’s ownership of SBA loans comprised of the following:

	June 30, 2020		December 31, 2019
	(In Thousands)
SBA 7(a) loans	$	40,815	$	40,402
SBA 504 loans	23,479		20,592
SBA Express loans and lines of credit	1,549		1,781
SBA PPP loans	327,932		—
Total SBA loans	$	393,775	$	62,775

As of June 30, 2020 and December 31, 2019, $9.7 million and $12.1 million of SBA loans were considered impaired, respectively.

Loans transferred to third parties consist of the guaranteed portions of SBA 7(a) loans which the Corporation sold in the secondary market and participation interests in other, non-SBA originated loans. The total principal amount of the guaranteed portions of SBA 7(a) loans sold during the three months ended June 30, 2020, and 2019, was $6.5 million and $3.3 million, respectively. The total principal amount of the guaranteed portions of SBA 7(a) loans sold during the six months ended June 30, 2020, and 2019, was $9.2 million and $5.6 million, respectively. Each of the transfers of these financial assets met the qualifications for sale accounting, and therefore all of the loans transferred during the three and six months ended June 30, 2020, and 2019, have been derecognized in the unaudited Consolidated Financial Statements. The guaranteed portions of SBA loans were transferred at their fair value and the related gain was recognized upon the transfer as non-interest income in the unaudited Consolidated Financial Statements. The total outstanding balance of sold SBA loans at June 30, 2020, and December 31, 2019, was $69.9 million and $73.8 million, respectively.

The total principal amount of transferred participation interests in other, non-SBA originated loans during the three months ended June 30, 2020, and 2019, was $10.3 million and $17.2 million, respectively. The total principal amount of transferred participation interests in other, non-SBA originated loans during the six months ended June 30, 2020, and 2019, was $22.2 million and $34.4 million, respectively, all of which were treated as sales and derecognized under the applicable accounting guidance at the time of transfer. No gain or loss was recognized on participation interests in other, non-SBA originated loans as they were transferred at or near the date of loan origination and the payments received for servicing the portion of the loans participated represents adequate compensation. The total outstanding balance of these transferred loans at June 30, 2020, and December 31, 2019, was $149.4 million and $142.8 million, respectively. As of June 30, 2020, and December 31, 2019, the total amount of the Corporation’s partial ownership of these transferred loans on the unaudited Consolidated Balance Sheets was $266.1 million and $244.6 million, respectively. No loans in this participation portfolio were considered impaired as of June 30, 2020, and December 31, 2019. The Corporation does not share in the participant’s portion of any potential charge-offs. The total amount of loan participations purchased on the unaudited Consolidated Balance Sheets as of June 30, 2020, and December 31, 2019, was $452,000 and $492,000, respectively.

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

	June 30, 2020
	Category
	I			II			III			IV			Total
	(Dollars in Thousands)
Commercial real estate:
Commercial real estate — owner occupied	$	170,546		$	26,515		$	25,430		$	7,503		$	229,994
Commercial real estate — non-owner occupied	458,069			55,494			19,648			—			533,211
Land development	42,922			328			—			1,049			44,299
Construction	122,392			10,983			—			—			133,375
Multi-family	220,688			23,808			—			—			244,496
1-4 family	32,687			1,682			2,072			382			36,823
Total commercial real estate	1,047,304			118,810			47,150			8,934			1,222,198
Commercial and industrial	658,377			41,156			66,672			15,034			781,239
Direct financing leases, net	18,661			214			6,601			49			25,525
Consumer and other:
Home equity and second mortgages	5,969			602			135			—			6,706
Other	29,425			185			—			127			29,737
Total consumer and other	35,394			787			135			127			36,443
Total gross loans and leases receivable	$	1,759,736		$	160,967		$	120,558		$	24,144		$	2,065,405
Category as a % of total portfolio	85.20		%	7.79		%	5.84		%	1.17		%	100.00		%

	December 31, 2019
	Category
	I			II			III			IV			Total
	(Dollars in Thousands)
Commercial real estate:
Commercial real estate — owner occupied	$	187,728		$	18,455		$	16,399		$	4,032		$	226,614
Commercial real estate — non-owner occupied	459,821			55,524			1,307			—			516,652
Land development	49,132			439			—			1,526			51,097
Construction	108,959			—			98			—			109,057
Multi-family	205,750			11,572			—			—			217,322
1-4 family	29,284			1,843			1,759			473			33,359
Total commercial real estate	1,040,674			87,833			19,563			6,031			1,154,101
Commercial and industrial	398,445			34,478			55,904			14,575			503,402
Direct financing leases, net	21,282			579			6,342			—			28,203
Consumer and other:
Home equity and second mortgages	6,307			610			89			—			7,006
Other	22,517			—			—			147			22,664
Total consumer and other	28,824			610			89			147			29,670
Total gross loans and leases receivable	$	1,489,225		$	123,500		$	81,898		$	20,753		$	1,715,376
Category as a % of total portfolio	86.82		%	7.20		%	4.77		%	1.21		%	100.00		%

Each credit is evaluated for proper risk rating upon origination, at the time of each subsequent renewal, upon receipt and evaluation of updated financial information from the Corporation’s borrowers, or as other circumstances dictate. The Corporation primarily uses a nine grade risk rating system to monitor the ongoing credit quality of its loans and leases. The risk

rating grades follow a consistent definition and are then applied to specific loan types based on the nature of the loan. Each risk rating is subjective and, depending on the size and nature of the credit, subject to various levels of review and concurrence on the stated risk rating. In addition to its nine grade risk rating system, the Corporation groups loans into four loan and related risk categories which determine the level and nature of review by management.

Category I — Loans and leases in this category are performing in accordance with the terms of the contract and generally exhibit no immediate concerns regarding the security and viability of the underlying collateral, financial stability of the borrower, integrity or strength of the borrowers’ management team, or the industry in which the borrower operates. The Corporation monitors Category I loans and leases through payment performance, continued maintenance of its personal relationships with such borrowers, and continued review of such borrowers’ compliance with the terms of their respective agreements.

Category II — Loans and leases in this category are beginning to show signs of deterioration in one or more of the Corporation’s core underwriting criteria such as financial stability, management strength, industry trends, or collateral values. Management will place credits in this category to allow for proactive monitoring and resolution with the borrower to possibly mitigate the area of concern and prevent further deterioration or risk of loss to the Corporation. Category II loans are considered performing but are monitored frequently by the assigned business development officer and by asset quality review committees.

Category III — Loans and leases in this category are identified by management as warranting special attention. However, the balance in this category is not intended to represent the amount of adversely classified assets held by the Bank. Category III loans and leases generally exhibit undesirable characteristics, such as evidence of adverse financial trends and conditions, managerial problems, deteriorating economic conditions within the related industry, or evidence of adverse public filings and may exhibit collateral shortfall positions. Management continues to believe that it will collect all contractual principal and interest in accordance with the original terms of the contracts relating to the loans and leases in this category, and therefore Category III loans are considered performing with no specific reserves established for this category. Category III loans are monitored by management and asset quality review committees on a monthly basis.

Category IV — Loans and leases in this category are considered to be impaired. Impaired loans and leases, with the exception of performing troubled debt restructurings, have been placed on non-accrual as management has determined that it is unlikely that the Bank will receive the contractual principal and interest in accordance with the original terms of the agreement. Impaired loans are individually evaluated to assess the need for the establishment of specific reserves or charge-offs. When analyzing the adequacy of collateral, the Corporation obtains external appraisals at least annually for impaired loans and leases. External appraisals are obtained from the Corporation’s approved appraiser listing and are independently reviewed to monitor the quality of such appraisals. To the extent a collateral shortfall position is present, a specific reserve or charge-off will be recorded to reflect the magnitude of the impairment. Loans and leases in this category are monitored by management and asset quality review committees on a monthly basis.

The delinquency aging of the loan and lease portfolio by class of receivable was as follows:

	June 30, 2020
	30-59 Days Past Due			60-89 Days Past Due			Greater Than 90 Days Past Due			Total Past Due			Current			Total Loans and Leases
	(Dollars in Thousands)
Accruing loans and leases
Commercial real estate:
Owner occupied	$	—		$	—		$	—		$	—		$	222,491		$	222,491
Non-owner occupied	—			—			—			—			533,211			533,211
Land development	—			—			—			—			43,250			43,250
Construction	—			—			—			—			133,375			133,375
Multi-family	—			—			—			—			244,496			244,496
1-4 family	—			—			—			—			36,490			36,490
Commercial and industrial	5,965			1,320			—			7,285			758,920			766,205
Direct financing leases, net	—			—			—			—			25,476			25,476
Consumer and other:
Home equity and second mortgages	—			—			—			—			6,706			6,706
Other	—			—			—			—			29,610			29,610
Total	5,965			1,320			—			7,285			2,034,025			2,041,310
Non-accruing loans and leases
Commercial real estate:
Owner occupied	—			—			3,550			3,550			3,953			7,503
Non-owner occupied	—			—			—			—			—			—
Land development	—			—			—			—			1,049			1,049
Construction	—			—			—			—			—			—
Multi-family	—			—			—			—			—			—
1-4 family	—			—			333			333			—			333
Commercial and industrial	76			283			7,416			7,775			7,259			15,034
Direct financing leases, net	—			—			—			—			49			49
Consumer and other:
Home equity and second mortgages	—			—			—			—			—			—
Other	—			—			127			127			—			127
Total	76			283			11,426			11,785			12,310			24,095
Total loans and leases
Commercial real estate:
Owner occupied	—			—			3,550			3,550			226,444			229,994
Non-owner occupied	—			—			—			—			533,211			533,211
Land development	—			—			—			—			44,299			44,299
Construction	—			—			—			—			133,375			133,375
Multi-family	—			—			—			—			244,496			244,496
1-4 family	—			—			333			333			36,490			36,823
Commercial and industrial	6,041			1,603			7,416			15,060			766,179			781,239
Direct financing leases, net	—			—			—			—			25,525			25,525
Consumer and other:
Home equity and second mortgages	—			—			—			—			6,706			6,706
Other	—			—			127			127			29,610			29,737
Total	$	6,041		$	1,603		$	11,426		$	19,070		$	2,046,335		$	2,065,405
Percent of portfolio	0.29		%	0.08		%	0.55		%	0.92		%	99.08		%	100.00		%

	December 31, 2019
	30-59 Days Past Due			60-89 Days Past Due			Greater Than 90 Days Past Due			Total Past Due			Current			Total Loans and Leases
	(Dollars in Thousands)
Accruing loans and leases
Commercial real estate:
Owner occupied	$	—		$	—		$	—		$	—		$	222,582		$	222,582
Non-owner occupied	—			—			—			—			516,652			516,652
Land development	—			990			—			990			48,581			49,571
Construction	309			—			—			309			108,748			109,057
Multi-family	—			—			—			—			217,322			217,322
1-4 family	—			—			—			—			33,026			33,026
Commercial and industrial	2,707			52			—			2,759			486,068			488,827
Direct financing leases, net	—			—			—			—			28,203			28,203
Consumer and other:
Home equity and second mortgages	—			—			—			—			7,006			7,006
Other	—			—			—			—			22,517			22,517
Total	3,016			1,042			—			4,058			1,690,705			1,694,763
Non-accruing loans and leases
Commercial real estate:
Owner occupied	—			—			342			342			3,690			4,032
Non-owner occupied	—			—			—			—			—			—
Land development	—			—			—			—			1,526			1,526
Construction	—			—			—			—			—			—
Multi-family	—			—			—			—			—			—
1-4 family	—			333			—			333			—			333
Commercial and industrial	4,368			2,717			3,123			10,208			4,367			14,575
Direct financing leases, net	—			—			—			—			—			—
Consumer and other:
Home equity and second mortgages	—			—			—			—			—			—
Other	—			—			147			147			—			147
Total	4,368			3,050			3,612			11,030			9,583			20,613
Total loans and leases
Commercial real estate:
Owner occupied	—			—			342			342			226,272			226,614
Non-owner occupied	—			—			—			—			516,652			516,652
Land development	—			990			—			990			50,107			51,097
Construction	309			—			—			309			108,748			109,057
Multi-family	—			—			—			—			217,322			217,322
1-4 family	—			333			—			333			33,026			33,359
Commercial and industrial	7,075			2,769			3,123			12,967			490,435			503,402
Direct financing leases, net	—			—			—			—			28,203			28,203
Consumer and other:
Home equity and second mortgages	—			—			—			—			7,006			7,006
Other	—			—			147			147			22,517			22,664
Total	$	7,384		$	4,092		$	3,612		$	15,088		$	1,700,288		$	1,715,376
Percent of portfolio	0.43		%	0.24		%	0.21		%	0.88		%	99.12		%	100.00		%

The Corporation’s total impaired assets consisted of the following:

	June 30, 2020		December 31, 2019
	(In Thousands)
Non-accrual loans and leases
Commercial real estate:
Commercial real estate — owner occupied	$	7,503	$	4,032
Commercial real estate — non-owner occupied	—		—
Land development	1,049		1,526
Construction	—		—
Multi-family	—		—
1-4 family	333		333
Total non-accrual commercial real estate	8,885		5,891
Commercial and industrial	15,034		14,575
Direct financing leases, net	49		—
Consumer and other:
Home equity and second mortgages	—		—
Other	127		147
Total non-accrual consumer and other loans	127		147
Total non-accrual loans and leases	24,095		20,613
Foreclosed properties, net	1,389		2,919
Total non-performing assets	25,484		23,532
Performing troubled debt restructurings	49		140
Total impaired assets	$	25,533	$	23,672

	June 30, 2020		December 31, 2019
Total non-accrual loans and leases to gross loans and leases	1.17	%	1.20	%
Total non-performing assets to total gross loans and leases plus foreclosed properties, net	1.23		1.37
Total non-performing assets to total assets	1.03		1.12
Allowance for loan and lease losses to gross loans and leases	1.33		1.14
Allowance for loan and lease losses to non-accrual loans and leases	113.98		94.70

As of June 30, 2020, and December 31, 2019, $16.3 million and $15.6 million of the non-accrual loans and leases were considered troubled debt restructurings, respectively. The Corporation has allocated $4.8 million and $2.7 million of specific reserves to troubled debt restructurings as of June 30, 2020 and December 31, 2019, respectively. There were no unfunded commitments associated with troubled debt restructured loans and leases as of June 30, 2020.

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

The following table provides the number of loans modified in a troubled debt restructuring and the pre- and post-modification recorded investment by class of receivable:

	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2020
	Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment
	(Dollars in Thousands)
Commercial real estate:
Commercial real estate — owner occupied	—	$	—	$	—	2	$	299	$	272
Commercial and industrial	1	4,986		4,986		3	6,007		5,756
Total	1	$	4,986	$	4,986	5	$	6,306	$	6,028

	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2019
	Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment
	(Dollars in Thousands)
Commercial and industrial	9	$	5,281	$	5,281	13	$	7,359	$	7,284

Restructured loan modifications may include payment schedule modifications, interest rate concessions, maturity date extensions, principal reduction, or some combination of these concessions. During the three and six months ended June 30, 2020, and 2019, the modification of terms primarily consisted of payment schedule modifications or principal reductions.

There were two commercial and industrial loans for a total of $2.7 million and four owner-occupied commercial real estate loans for a total of $3.8 million modified in troubled debt restructurings during the previous 12 months which subsequently defaulted during the three and six months ended June 30, 2020. There were two commercial and industrial loans modified in a troubled debt restructuring during the previous 12 months which subsequently defaulted during the three and six months ended June 30, 2019 in the amount of $2.8 million.

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

	As of and for the Six Months Ended June 30, 2020
	Recorded Investment(1)		Unpaid Principal Balance			Impairment Reserve		Average Recorded Investment(2)			Foregone Interest Income			Interest Income Recognized		Net Foregone Interest Income
	(In Thousands)
With no impairment reserve recorded:
Commercial real estate:
Owner occupied	$	3,856	$	3,856		$	—	$	4,577		$	86		$	72	$	14
Non-owner occupied	—		—			—		53			—			—		—
Land development	1,049		5,346			—		1,442			19			—		19
Construction	—		—			—		—			—			—		—
Multi-family	—		—			—		—			—			—		—
1-4 family	382		387			—		433			21			70		(49		)
Commercial and industrial	5,328		7,273			—		14,291			550			316		234
Direct financing leases, net	—		—			—		4			—			—		—
Consumer and other:
Home equity and second mortgages	—		—			—		—			—			—		—
Other	127		794			—		137			22			—		22
Total	10,742		17,656			—		20,937			698			458		240
With impairment reserve recorded:
Commercial real estate:
Owner occupied	3,647		5,034			3,052		1,469			201			—		201
Non-owner occupied	—		—			—		—			—			—		—
Land development	—		—		—	—		—		—	—		—	—		—
Construction	—		—		—	—		—		—	—		—	—		—
Multi-family	—		—			—		—			—			—		—
1-4 family	—		—			—		—			—			—		—
Commercial and industrial	9,706		11,154			2,847		1,437			213			—		213
Direct financing leases, net	49		49			25		4			2			—		2
Consumer and other:
Home equity and second mortgages	—		—			—		—			—			—		—
Other	—		—			—		—			—			—		—
Total	13,402		16,237			5,924		2,910			416			—		416
Total:
Commercial real estate:
Owner occupied	7,503		8,890			3,052		6,046			287			72		215
Non-owner occupied	—		—			—		53			—			—		—
Land development	1,049		5,346			—		1,442			19			—		19
Construction	—		—			—		—			—			—		—
Multi-family	—		—			—		—			—			—		—
1-4 family	382		387			—		433			21			70		(49		)
Commercial and industrial	15,034		18,427			2,847		15,728			763			316		447
Direct financing leases, net	49		49			25		8			2			—		2
Consumer and other:
Home equity and second mortgages	—		—			—		—			—			—		—
Other	127		794			—		137			22			—		22
Grand total	$	24,144	$	33,893		$	5,924	$	23,847		$	1,114		$	458	$	656

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

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

	As of and for the Year Ended December 31, 2019
	Recorded Investment(1)		Unpaid Principal Balance		Impairment Reserve		Average Recorded Investment(2)		Foregone Interest Income		Interest Income Recognized		Net Foregone Interest Income
	(In Thousands)
With no impairment reserve recorded:
Commercial real estate:
Owner occupied	$	387	$	387	$	—	$	3,285	$	64	$	355	$	(291	)
Non-owner occupied	—		—		—		58		1		—		1
Land development	1,526		5,823		—		1,843		52		6		46
Construction	—		—		—		—		—		—		—
Multi-family	—		—		—		—		—		—		—
1-4 family	473		478		—		356		19		46		(27		)
Commercial and industrial	4,779		6,549		—		14,479		1,073		379		694
Direct financing leases, net	—		—		—		—		—		—		—
Consumer and other:
Home equity and second mortgages	—		—		—		—		—		7		(7		)
Other	147		813		—		191		48		—		48
Total	7,312		14,050		—		20,212		1,257		793		464
With impairment reserve recorded:
Commercial real estate:
Owner occupied	3,645		5,004		1,082		1,511		414		—		414
Non-owner occupied	—		—		—		—		—		—		—
Land development	—		—		—		—		—		—		—
Construction	—		—		—		—		—		—		—
Multi-family	—		—		—		—		—		—		—
1-4 family	—		—		—		—		—		—		—
Commercial and industrial	9,796		11,179		2,283		2,367		1,022		—		1,022
Direct financing leases, net	—		—		—		—		—		—		—
Consumer and other:
Home equity and second mortgages	—		—		—		—		—		—		—
Other	—		—		—		—		—		—		—
Total	13,441		16,183		3,365		3,878		1,436		—		1,436
Total:
Commercial real estate:
Owner occupied	4,032		5,391		1,082		4,796		478		355		123
Non-owner occupied	—		—		—		58		1		—		1
Land development	1,526		5,823		—		1,843		52		6		46
Construction	—		—		—		—		—		—		—
Multi-family	—		—		—		—		—		—		—
1-4 family	473		478		—		356		19		46		(27		)
Commercial and industrial	14,575		17,728		2,283		16,846		2,095		379		1,716
Direct financing leases, net	—		—		—		—		—		—		—
Consumer and other:
Home equity and second mortgages	—		—		—		—		—		7		(7		)
Other	147		813		—		191		48		—		48
Grand total	$	20,753	$	30,233	$	3,365	$	24,090	$	2,693	$	793	$	1,900

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

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

The difference between the recorded investment of loans and leases and the unpaid principal balance of $9.7 million and $9.5 million as of June 30, 2020, and December 31, 2019, respectively, represents partial charge-offs of loans and leases resulting from losses due to the appraised value of the collateral securing the loans and leases being below the carrying values of the loans and leases. Impaired loans and leases also included $49,000 and $140,000 of loans as of June 30, 2020, and December 31, 2019, respectively, that were performing troubled debt restructurings, and although not on non-accrual, were reported as impaired due to the concession in terms. When a loan is placed on non-accrual, interest accrual is discontinued and previously accrued but uncollected interest is deducted from interest income. Cash payments collected on non-accrual loans are first applied to such loan’s principal. Foregone interest represents the interest that was contractually due on the loan but not received or recorded. To the extent the amount of principal on a non-accrual loan is fully collected and additional cash is received, the Corporation will recognize interest income.

To determine the level and composition of the allowance for loan and lease losses, the Corporation categorizes the portfolio into segments with similar risk characteristics. First, the Corporation evaluates loans and leases for potential impairment classification. The Corporation analyzes each loan and lease determined to be impaired on an individual basis to determine a specific reserve based upon the estimated value of the underlying collateral for collateral-dependent loans, or alternatively, the present value of expected cash flows. The Corporation applies historical trends from established risk factors to each category of loans and leases that has not been individually evaluated for the purpose of establishing the general portion of the allowance.

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

	As of and for the Three Months Ended June 30, 2020
	Commercial Real Estate			Commercial and Industrial			Consumer and Other			Total
	(In Thousands)
Beginning balance	$	12,597		$	9,322		$	829		$	22,748
Charge-offs	(27		)	(784		)	(6		)	(817		)
Recoveries	2			62			—			64
Net charge-offs	(25		)	(722		)	(6		)	(753		)
Provision for loan and lease losses	3,866			1,579			24			5,469
Ending balance	$	16,438		$	10,179		$	847		$	27,464

	As of and for the Three Months Ended June 30, 2019
	Commercial Real Estate			Commercial and Industrial			Consumer and Other			Total
	(In Thousands)
Beginning balance	$	11,205		$	8,485		$	759		$	20,449
Charge-offs	—			(13		)	(2		)	(15		)
Recoveries	72			72			25			169
Net recoveries	72			59			23			154
Provision for loan and lease losses	(8		)	(652		)	(124		)	(784		)
Ending balance	$	11,269		$	7,892		$	658		$	19,819

	As of and for the Six Months Ended June 30, 2020
	Commercial Real Estate			Commercial and Industrial			Consumer and Other			Total
	(In Thousands)
Beginning balance	$	10,852		$	8,078		$	590		$	19,520
Charge-offs	(27		)	(909		)	(12		)	(948		)
Recoveries	3			238			—			241
Net charge-offs	(24		)	(671		)	(12		)	(707		)
Provision for loan and lease losses	5,610			2,772			269			8,651
Ending balance	$	16,438		$	10,179		$	847		$	27,464

	As of and for the Six Months Ended June 30, 2019
	Commercial Real Estate			Commercial and Industrial			Consumer and Other			Total
	(In Thousands)
Beginning balance	$	11,662		$	8,079		$	684		$	20,425
Charge-offs	—			(61		)	(2		)	(63		)
Recoveries	73			92			28			193
Net recoveries	73			31			26			130
Provision for loan and lease losses	(466		)	(218		)	(52		)	(736		)
Ending balance	$	11,269		$	7,892		$	658		$	19,819

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

	As of June 30, 2020
	Commercial Real Estate		Commercial and Industrial		Consumer and Other		Total
	(In Thousands)
Allowance for loan and lease losses:
Collectively evaluated for impairment	$	13,386	$	7,307	$	847	$	21,540
Individually evaluated for impairment	3,052		2,872		—		5,924
Total	$	16,438	$	10,179	$	847	$	27,464
Loans and lease receivables:
Collectively evaluated for impairment	$	1,213,264	$	791,681	$	36,316	$	2,041,261
Individually evaluated for impairment	8,934		15,083		127		24,144
Total	$	1,222,198	$	806,764	$	36,443	$	2,065,405

	As of December 31, 2019
	Commercial Real Estate		Commercial and Industrial		Consumer and Other		Total
	(In Thousands)
Allowance for loan and lease losses:
Collectively evaluated for impairment	$	9,770	$	5,795	$	590	$	16,155
Individually evaluated for impairment	1,082		2,283		—		3,365
Total	$	10,852	$	8,078	$	590	$	19,520
Loans and lease receivables:
Collectively evaluated for impairment	$	1,148,070	$	517,030	$	29,523	$	1,694,623
Individually evaluated for impairment	6,031		14,575		147		20,753
Total	$	1,154,101	$	531,605	$	29,670	$	1,715,376

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Leases Leases

6 Months Ended

Jun. 30, 2020

Leases [Abstract]

Leases

Leases

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

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

The components of total lease expense were as follows:

	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2020			2019		2020			2019
	(In Thousands)
Operating lease cost	$	372		$	391	$	745		$	781
Short-term lease cost	126			101		253			238
Variable lease cost	48			74		122			142
Less: sublease income	(28		)	—		(56		)	—
Total lease cost, net	$	518		$	566	$	1,064		$	1,161

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

	June 30, 2020		December 31, 2019
Weighted-average remaining lease term (in years)	5.87		6.56
Weighted-average discount rate	3.10	%	3.09	%

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

(In Thousands)
2020	$	767
2021	1,382
2022	1,373
2023	1,015
2024	756
Thereafter	2,307
Total undiscounted cash flows	7,600
Discount on cash flows	(723		)
Total lease liability	$	6,877

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Other Assets

6 Months Ended

Jun. 30, 2020

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Other Assets

Note 8 — Other Assets

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

	June 30, 2020		December 31, 2019
	(In Thousands)
Accrued interest receivable	$	7,207	$	5,760
Net deferred tax asset	5,436		5,353
Investment in historic development entities	2,345		2,216
Investment in a community development entity	5,316		5,571
Investment in limited partnerships	4,973		4,476
Investment in Trust II	315		315
Fair value of interest rate swaps	58,808		18,346
Prepaid expenses	2,227		2,285
Other assets	8,464		4,184
Total accrued interest receivable and other assets	$	95,091	$	48,506

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Deposits

6 Months Ended

Jun. 30, 2020

Deposits [Abstract]

Deposits

Deposits

The composition of deposits is shown below. Average balances represent year to date averages.

	June 30, 2020						December 31, 2019
	Balance		Average Balance		Average Rate		Balance		Average Balance		Average Rate
	(Dollars in Thousands)
Non-interest-bearing transaction accounts	$	433,760	$	365,771	—	%	$	293,573	$	275,495	—	%
Interest-bearing transaction accounts	413,214		320,188		0.59		273,909		222,244		1.53
Money market accounts	656,741		653,598		0.68		674,409		617,341		1.71
Certificates of deposit	116,901		128,791		2.14		137,012		156,048		2.47
Wholesale deposits	89,759		119,032		2.50		151,476		225,302		2.27
Total deposits	$	1,710,375	$	1,587,380	0.76		$	1,530,379	$	1,496,430	1.53

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FHLB Advances, Other Borrowings and Junior Subordinated Notes Payable

6 Months Ended

Jun. 30, 2020

Debt Disclosure [Abstract]

FHLB Advances, Other Borrowings and Junior Subordinated Notes Payable

FHLB Advances, Other Borrowings and Junior Subordinated Notes

The composition of borrowed funds is shown below. Average balances represent year to date averages.

	June 30, 2020						December 31, 2019
	Balance		Weighted Average Balance		Weighted Average Rate		Balance		Weighted Average Balance		Weighted Average Rate
	(Dollars in Thousands)
Federal funds purchased	$	—	$	143	0.69	%	$	—	$	59	2.45	%
Federal Reserve PPPLF	29,605		10,410		0.35		—		—		—
FHLB advances	411,000		367,604		1.55		295,000		286,464		2.17
Other borrowings	675		675		8.09		675		675		8.11
Subordinated notes payable(1)	23,727		23,715		5.95		23,707		24,502		7.45
Junior subordinated notes	10,054		10,050		11.04		10,047		10,040		11.08
	$	475,061	$	412,597	2.01		$	329,429	$	321,740	2.87
Short-term borrowings	$	202,500					$	118,500
Long-term borrowings	272,561						210,929
	$	475,061					$	329,429

(1) Weighted average rate of subordinated notes payable reflects the accelerated amortization of subordinated debt issuance costs as a result of the early redemption of a subordinated note during the third quarter of 2019.

During the three months ended June 30, 2020, the Corporation prepaid $59.5 million of short-term FHLB advances that had a weighted average interest rate of 2.34%. The transaction was accounted for as an early debt extinguishment resulting in a pre-tax loss of $744,000 during the three months ended June 30, 2020.

As of June 30, 2020 and December 31, 2019, the Corporation was in compliance with its debt covenants under its third-party secured senior line of credit. Per the promissory note dated February 19, 2020, the Corporation pays a fee on this line of credit. During the six months ended June 30, 2020 and 2019, the Corporation incurred interest expense due to this fee of $7,000 and $6,000, respectively.

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

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

The Corporation sells the guaranteed portions of SBA 7(a) loans, as well as participation interests in other, non-SBA originated, loans to third parties. The Corporation has a continuing involvement in each of the transferred lending arrangements by way of relationship management and servicing the loans, as well as being subject to normal and customary requirements of the SBA loan program and standard representations and warranties related to sold amounts. In the event of a loss resulting from default and a determination by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced by the Corporation, the SBA may require the Corporation to repurchase the loan, deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of the principal loss related to the deficiency from the Corporation. The Corporation must comply with applicable SBA regulations in order to maintain the guaranty. In addition, the Corporation retains the option to repurchase the sold guaranteed portion of an SBA loan if the loan defaults.

Management has assessed estimated losses inherent in the outstanding guaranteed portions of SBA loans sold in accordance with ASC 450, Contingencies, and determined a recourse reserve based on the probability of future losses for these loans to be $1.0 million at June 30, 2020, which is reported in accrued interest payable and other liabilities on the unaudited Consolidated Balance Sheets.

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

	As of and for the Three Months Ended June 30,						As of and for the Six Months Ended June 30,
	2020			2019			2020			2019
	(In Thousands)
Balance at the beginning of the period	$	1,086		$	3,276		$	1,345		$	2,956
SBA recourse (benefit) provision	(30		)	113			(5		)	594
Charge-offs, net	(49		)	(1,321		)	(333		)	(1,482		)
Balance at the end of the period	$	1,007		$	2,068		$	1,007		$	2,068

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Fair Value Disclosures

6 Months Ended

Jun. 30, 2020

Fair Value Disclosures [Abstract]

Fair Value Disclosures

Fair Value Disclosures

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

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

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

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

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

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

	June 30, 2020
	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total
	(In Thousands)
Assets:
Securities available-for-sale:
U.S. government agency securities - government-sponsored enterprises	$	—	$	21,970	$	—	$	21,970
Municipal securities	—		11,471		—		11,471
Residential mortgage-backed securities - government issued	—		12,883		—		12,883
Residential mortgage-backed securities - government-sponsored enterprises	—		104,089		—		104,089
Commercial mortgage-backed securities - government issued	—		6,366		—		6,366
Commercial mortgage-backed securities - government-sponsored enterprises	—		12,604		—		12,604
Other securities	—		2,297		—		2,297
Interest rate swaps	—		58,808		—		58,808
Liabilities:
Interest rate swaps	—		65,390		—		65,390

	December 31, 2019
	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total
	(In Thousands)
Assets:
Securities available-for-sale:
U.S. government agency securities - government-sponsored enterprises	$	—	$	23,758	$	—	$	23,758
Municipal securities	—		160		—		160
Residential mortgage-backed securities - government issued	—		16,348		—		16,348
Residential mortgage-backed securities - government-sponsored enterprises	—		112,002		—		112,002
Commercial mortgage-backed securities - government issued	—		6,663		—		6,663
Commercial mortgage-backed securities - government-sponsored enterprises	—		11,967		—		11,967
Other securities	—		2,235		—		2,235
Interest rate swaps	—		18,346		—		18,346
Liabilities:
Interest rate swaps	—		20,885		—		20,885

For assets and liabilities measured at fair value on a recurring basis, there were no transfers between the levels during the three and six months ended June 30, 2020 or the year ended December 31, 2019 related to the above measurements.

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

	June 30, 2020
	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total
	(In Thousands)
Impaired loans	$	—	$	—	$	13,203	$	13,203
Foreclosed properties	—		—		1,389		1,389
Loan servicing rights	—		—		1,216		1,216

	December 31, 2019
	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total
	(In Thousands)
Impaired loans	$	—	$	—	$	15,699	$	15,699
Foreclosed properties	—		—		2,919		2,919
Loan servicing rights	—		—		1,195		1,195

Impaired loans were written down to the fair value of their underlying collateral less costs to sell of $13.2 million and $15.7 million at June 30, 2020 and December 31, 2019, respectively, through the establishment of specific reserves or by recording charge-offs when the carrying value exceeded the fair value of the underlying collateral of impaired loans. Valuation techniques consistent with the market approach, income approach, or cost approach were used to measure fair value. These techniques included observable inputs for the individual impaired loans being evaluated, such as current appraisals, recent sales of similar assets, or other observable market data, and unobservable inputs, typically when discounts are applied to appraisal values to adjust such values to current market conditions or to reflect net realizable values. The quantification of unobservable inputs for Level 3 impaired loan values range from 5% - 93% as of the measurement date of June 30, 2020. The weighted average of those unobservable inputs was 21%. The majority of the impaired loans are considered collateral dependent loans or are supported by a SBA guaranty.

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

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

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

Fair Value of Financial Instruments

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

	June 30, 2020
	Carrying Amount		Fair Value
			Total		Level 1		Level 2		Level 3
	(In Thousands)
Financial assets:
Cash and cash equivalents	$	42,391	$	42,391	$	42,391	$	—	$	—
Securities available-for-sale	171,680		171,680		—		171,680		—
Securities held-to-maturity	29,826		30,887		—		30,887		—
Loans held for sale	13,672		14,902		—		14,902		—
Loans and lease receivables, net	2,029,399		2,027,279		—		—		2,027,279
Federal Home Loan Bank stock	13,470		N/A		N/A		N/A		N/A
Accrued interest receivable	7,207		7,207		7,207		—		—
Interest rate swaps	58,808		58,808		—		58,808		—
Financial liabilities:
Deposits	1,710,375		1,713,277		1,503,715		209,562		—
Federal Home Loan Bank advances and other borrowings	465,007		475,173		—		475,173		—
Junior subordinated notes	10,054		9,978		—		—		9,978
Accrued interest payable	2,012		2,012		2,012		—		—
Interest rate swaps	65,390		65,390		—		65,390		—
Off-balance sheet items:
Standby letters of credit	53		53		—		—		53

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

	December 31, 2019
	Carrying Amount		Fair Value
			Total		Level 1		Level 2		Level 3
	(In Thousands)
Financial assets:
Cash and cash equivalents	$	67,102	$	67,102	$	61,202	$	5,900	$	—
Securities available-for-sale	173,133		173,133		—		173,133		—
Securities held-to-maturity	32,700		33,188		—		33,188		—
Loans held for sale	5,205		5,673		—		5,673		—
Loans and lease receivables, net	1,695,115		1,706,201		—		—		1,706,201
Federal Home Loan Bank stock	7,953		N/A		N/A		N/A		N/A
Accrued interest receivable	5,760		5,760		5,760		—		—
Interest rate swaps	18,346		18,346		—		18,346		—
Financial liabilities:
Deposits	1,530,379		1,532,517		1,241,891		290,626		—
Federal Home Loan Bank advances and other borrowings	319,382		319,507		—		319,507		—
Junior subordinated notes	10,047		9,970		—		—		9,970
Accrued interest payable	2,882		2,282		2,282		—		—
Interest rate swaps	20,885		20,885		—		20,885		—
Off-balance sheet items:
Standby letters of credit	63		63		—		—		63

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

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

Securities: The fair value measurements of investment securities are determined by a third-party pricing service which considers observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, trade execution data, market consensus prepayment speeds, credit information, and the securities’ terms and conditions, among other things. The fair value measurements are subject to independent verification by another pricing source on a quarterly basis to review for reasonableness. Any significant differences in pricing are reviewed with appropriate members of management who have the relevant technical expertise to assess the results. The Corporation has determined that these valuations are classified in Level 2 of the fair value hierarchy. When the independent pricing service does not provide a fair value measurement for a particular security, the Corporation will estimate the fair value based on specific information about each security. Fair values derived in this manner are classified in Level 3 of the fair value hierarchy.

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

Interest Rate Swaps: The carrying amount and fair value of existing derivative financial instruments are based upon independent valuation models, which use widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative contract. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The Corporation incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the

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

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

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

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Derivative Financial Instruments

6 Months Ended

Jun. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

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

At June 30, 2020, the aggregate amortizing notional value of interest rate swaps with various commercial borrowers was $467.1 million. The Corporation receives fixed rates and pays floating rates based upon LIBOR on the swaps with commercial borrowers. These interest rate swaps mature between March 2021 and May 2037. Commercial borrower swaps are completed independently with each borrower and are not subject to master netting arrangements. These commercial borrower swaps were reported on the unaudited Consolidated Balance Sheet as a derivative asset of $58.8 million, included in accrued interest receivable and other assets. As of June 30, 2020, no interest rate swaps were in default.

At June 30, 2020, the aggregate amortizing notional value of interest rate swaps with dealer counterparties was also $467.1 million. The Corporation pays fixed rates and receives floating rates based upon LIBOR on the swaps with dealer counterparties. These interest rate swaps mature in March 2021 through May 2037. Dealer counterparty swaps are subject to master netting agreements among the contracts within our Bank and are reported on the unaudited Consolidated Balance Sheet as a net derivative liability of $58.8 million, included in accrued interest payable and other liabilities. The gross amount of dealer counterparty swaps, without regard to the enforceable master netting agreement, was a gross derivative liability of $58.8 million and no gross derivative asset. No right of offset existed with dealer counterparty swaps as of June 30, 2020.

All changes in the fair value of these instruments are recorded in other non-interest income. Given the mirror-image terms of the outstanding derivative portfolio, the change in fair value for the three and six months ended June 30, 2020 and 2019 had an insignificant impact on the unaudited Consolidated Statements of Income.

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

As of June 30, 2020, the aggregate notional value of interest rate swaps designated as cash flow hedges was $114.0 million. These interest rate swaps mature between December 2021 and December 2027. A pre-tax unrealized loss of $418,000 and $4.0

million was recognized in other comprehensive income for the three and six months ended June 30, 2020, respectively, and there was no ineffective portion of these hedges.

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

	Interest Rate Swap Contracts
	Asset Derivatives			Liability Derivatives
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
	(In Thousands)
Derivatives not designated as hedging instruments
June 30, 2020	Accrued interest receivable and other assets	$	58,808	Accrued interest payable and other liabilities	$	58,808
December 31, 2019	Accrued interest receivable and other assets	$	18,346	Accrued interest payable and other liabilities	$	18,346
Derivatives designated as hedging instruments
June 30, 2020	Accumulated other comprehensive income (1)	$	6,582	Accrued interest payable and other liabilities	$	6,582
December 31, 2019	Accumulated other comprehensive income (1)	$	2,539	Accrued interest payable and other liabilities	$	2,539

(1)

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

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Regulatory Capital

6 Months Ended

Jun. 30, 2020

Broker-Dealer, Net Capital Requirement, SEC Regulation [Abstract]

Regulatory Capital

Regulatory Capital

The Corporation and the Bank are subject to various regulatory capital requirements administered by Federal and Wisconsin banking agencies. Failure to meet minimum capital requirements can result in certain mandatory, and possibly additional discretionary actions on the part of regulators, that if undertaken, could have a direct material effect on the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory practices. The Corporation’s and the Bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. The Corporation regularly reviews and updates, when appropriate, its Capital and Liquidity Action Plan, which is designed to help ensure appropriate capital adequacy, to plan for future capital needs, and to ensure that the Corporation serves as a source of financial strength to the Bank. The Corporation’s and the Bank’s Boards of Directors and management teams adhere to the appropriate regulatory guidelines on decisions which affect their respective capital positions, including but not limited to, decisions relating to the payment of dividends and increasing indebtedness.

As a bank holding company, the Corporation’s ability to pay dividends is affected by the policies and enforcement powers of the Board of Governors of the Federal Reserve system (the “Federal Reserve”). Federal Reserve guidance urges financial institutions to strongly consider eliminating, deferring, or significantly reducing dividends if: (i) net income available to common stockholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividend; (ii) the prospective rate of earnings retention is not consistent with the bank holding company’s capital needs and overall current and prospective financial condition; or (iii) the bank holding company will not meet, or is in danger of not meeting, its minimum regulatory capital ratios. Management intends, when appropriate under regulatory guidelines, to consult with the Federal Reserve Bank of Chicago and provide it with information on the Corporation’s then-current and prospective earnings and capital position in advance of declaring any cash dividends. As a Wisconsin corporation, the Corporation is subject to the limitations of the Wisconsin Business Corporation Law, which prohibit the Corporation from paying dividends if such payment would: (i) render the Corporation unable to pay its debts as they become due in the usual course of business, or (ii) result in the Corporation’s assets being less than the sum of its total liabilities plus the amount needed to satisfy the preferential rights upon dissolution of any stockholders with preferential rights superior to those stockholders receiving the dividend.

The Bank is also subject to certain legal, regulatory, and other restrictions on its ability to pay dividends to the Corporation. As a bank holding company, the payment of dividends by the Bank to the Corporation is one of the sources of funds the Corporation could use to pay dividends, if any, in the future and to make other payments. Future dividend decisions by the Bank and the Corporation will continue to be subject to compliance with various legal, regulatory, and other restrictions as defined from time to time.

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

As of June 30, 2020, the Corporation’s capital levels exceeded the regulatory minimums and the Bank’s capital levels remained characterized as well capitalized under the regulatory framework. The following tables summarize both the Corporation’s and the Bank’s capital ratios and the ratios required by their federal regulators:

	As of June 30, 2020
	Actual				Minimum Required for Capital Adequacy Purposes				For Capital Adequacy Purposes Plus Capital Conservation Buffer				Minimum Required to Be Well Capitalized Under Prompt Corrective Action Requirements
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount	Ratio
	(Dollars in Thousands)
Total capital (to risk-weighted assets)
Consolidated	$	247,276	11.97	%	$	165,275	8.00	%	$	216,924	10.50	%	N/A	N/A
First Business Bank	238,138		11.60		164,225		8.00		215,545		10.50		205,281	10.00	%
Tier 1 capital (to risk-weighted assets)
Consolidated	$	197,692	9.57	%	$	123,956	6.00	%	$	175,605	8.50	%	N/A	N/A
First Business Bank	212,443		10.35		123,169		6.00		174,489		8.50		164,225	8.00
Common equity tier 1 capital (to risk-weighted assets)
Consolidated	$	187,638	9.08	%	$	92,967	4.50	%	$	144,616	7.00	%	N/A	N/A
First Business Bank	212,443		10.35		92,376		4.50		143,697		7.00		133,433	6.50
Tier 1 leverage capital (to adjusted assets)
Consolidated	$	197,692	8.29	%	$	95,431	4.00	%	$	95,431	4.00	%	N/A	N/A
First Business Bank	212,443		8.96		94,856		4.00		94,856		4.00		118,570	5.00

	As of December 31, 2019
	Actual				Minimum Required for Capital Adequacy Purposes				For Capital Adequacy Purposes Plus Capital Conservation Buffer				Minimum Required to Be Well Capitalized Under Prompt Corrective Action Requirements
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount	Ratio
	(Dollars in Thousands)
Total capital (to risk-weighted assets)
Consolidated	$	239,029	12.01	%	$	159,185	8.00	%	$	208,930	10.50	%	N/A	N/A
First Business Bank	233,181		11.79		158,177		8.00		207,607		10.50		197,721	10.00	%
Tier 1 capital (to risk-weighted assets)
Consolidated	$	194,456	9.77	%	$	119,388	6.00	%	$	169,134	8.50	%	N/A	N/A
First Business Bank	212,315		10.74		118,633		6.00		168,063		8.50		158,177	8.00
Common equity tier 1 capital (to risk-weighted assets)
Consolidated	$	184,409	9.27	%	$	89,541	4.50	%	$	139,286	7.00	%	N/A	N/A
First Business Bank	212,315		10.74		88,974		4.50		138,405		7.00		128,519	6.50
Tier 1 leverage capital (to adjusted assets)
Consolidated	$	194,456	9.27	%	$	83,950	4.00	%	$	83,950	4.00	%	N/A	N/A
First Business Bank	212,315		10.18		83,414		4.00		83,414		4.00		104,268	5.00

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Nature of Operations and Summary of Significant Accounting Policies Nature of Operations and Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying unaudited Consolidated Financial Statements were prepared in accordance with GAAP and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Corporation’s Consolidated Financial Statements and footnotes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2019.

Principles of Consolidation

The unaudited Consolidated Financial Statements include the accounts of the Corporation and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. In accordance with the provisions of Accounting Standards Codification (“ASC”) Topic 810, the Corporation’s ownership interest in FBFS Statutory Trust II (“Trust II”) has not been consolidated into the financial statements.

Use of Estimates

Management of the Corporation is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Material estimates that could significantly change in the near-term include the value of securities and interest rate swaps, level of the allowance for loan and lease losses, lease residuals, property under operating leases, goodwill, level of the Small Business Administration (“SBA”) recourse reserve, and income taxes.

Reclassification

ertain amounts in prior periods may have been reclassified to conform to the current presentation.

Subsequent Events

ubsequent events have been evaluated through the date of the issuance of the unaudited Consolidated Financial Statements. No significant subsequent events have occurred through this date requiring adjustment to the financial statements or disclosures.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

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

standard. Management has gathered all necessary data and reviewed potential methods to calculate the expected credit losses. Management is currently calculating sample expected loss computations and developing the allowance methodology and assumptions that will be used under the new standard. Management will continue to progress on its implementation project plan and improve the Corporation’s approach throughout the deferral period.

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Earnings Per Common Share (Policies)

6 Months Ended

Jun. 30, 2020

Earnings Per Share [Abstract]

Earnings Per Share

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

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Share-Based Compensation (Policies)

6 Months Ended

Jun. 30, 2020

Share-based Payment Arrangement [Abstract]

Share-based Compensation, Option and Incentive Plans

The Corporation adopted the 2019 Equity Incentive Plan (the “Plan”) during the quarter ended June 30, 2019. The Plan is administered by the Compensation Committee of the Board of Directors of the Corporation and provides for the grant of equity ownership opportunities through incentive stock options and nonqualified stock options, restricted stock, restricted stock units, dividend equivalent units, and any other type of award permitted by the Plan. As of June 30, 2020, 147,489 shares were available for future grants under the Plan. Shares covered by awards that expire, terminate, or lapse will again be available for the grant of awards under the Plan. The Corporation may issue new shares and shares from its treasury stock for shares delivered under the Plan.

Restricted Stock

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

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

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Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses (Policies)

6 Months Ended

Jun. 30, 2020

Receivables [Abstract]

Loans and Leases Receivable, Allowance for Loan Losses

To determine the level and composition of the allowance for loan and lease losses, the Corporation categorizes the portfolio into segments with similar risk characteristics. First, the Corporation evaluates loans and leases for potential impairment classification. The Corporation analyzes each loan and lease determined to be impaired on an individual basis to determine a specific reserve based upon the estimated value of the underlying collateral for collateral-dependent loans, or alternatively, the present value of expected cash flows. The Corporation applies historical trends from established risk factors to each category of loans and leases that has not been individually evaluated for the purpose of establishing the general portion of the allowance.

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Fair Value Disclosures (Policies)

6 Months Ended

Jun. 30, 2020

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

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

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

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

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

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

Impaired loans were written down to the fair value of their underlying collateral less costs to sell of $13.2 million and $15.7 million at June 30, 2020 and December 31, 2019, respectively, through the establishment of specific reserves or by recording charge-offs when the carrying value exceeded the fair value of the underlying collateral of impaired loans. Valuation techniques consistent with the market approach, income approach, or cost approach were used to measure fair value. These techniques included observable inputs for the individual impaired loans being evaluated, such as current appraisals, recent sales of similar assets, or other observable market data, and unobservable inputs, typically when discounts are applied to appraisal values to adjust such values to current market conditions or to reflect net realizable values. The quantification of unobservable inputs for Level 3 impaired loan values range from 5% - 93% as of the measurement date of June 30, 2020. The weighted average of those unobservable inputs was 21%. The majority of the impaired loans are considered collateral dependent loans or are supported by a SBA guaranty.

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

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

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

Fair Value Measurement

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

Securities: The fair value measurements of investment securities are determined by a third-party pricing service which considers observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, trade execution data, market consensus prepayment speeds, credit information, and the securities’ terms and conditions, among other things. The fair value measurements are subject to independent verification by another pricing source on a quarterly basis to review for reasonableness. Any significant differences in pricing are reviewed with appropriate members of management who have the relevant technical expertise to assess the results. The Corporation has determined that these valuations are classified in Level 2 of the fair value hierarchy. When the independent pricing service does not provide a fair value measurement for a particular security, the Corporation will estimate the fair value based on specific information about each security. Fair values derived in this manner are classified in Level 3 of the fair value hierarchy.

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

Interest Rate Swaps: The carrying amount and fair value of existing derivative financial instruments are based upon independent valuation models, which use widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative contract. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The Corporation incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the

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

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

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

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Derivative Financial Instruments (Policies)

6 Months Ended

Jun. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives

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

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Earnings Per Common Share (Tables)

6 Months Ended

Jun. 30, 2020

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2020		2019		2020		2019
	(Dollars in Thousands, Except Share Data)
Basic earnings per common share
Net income	$	3,323	$	6,572	$	6,601	$	12,472
Less: earnings allocated to participating securities	93		151		173		239
Basic earnings allocated to common stockholders	$	3,230	$	6,421	$	6,428	$	12,233
Weighted-average common shares outstanding, excluding participating securities	8,392,197		8,569,581		8,379,696		8,584,444
Basic earnings per common share	$	0.38	$	0.75	$	0.77	$	1.43
Diluted earnings per common share
Earnings allocated to common stockholders, diluted	$	3,230	$	6,421	$	6,428	$	12,233
Weighted-average diluted common shares outstanding, excluding participating securities	8,392,197		8,569,581		8,379,696		8,584,444
Diluted earnings per common share	$	0.38	$	0.75	$	0.77	$	1.43

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Share-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2020

Share-based Payment Arrangement [Abstract]

Restricted Stock Activity

Restricted stock activity for the year ended December 31, 2019 and the six months ended June 30, 2020 was as follows:

	Number of Restricted Shares/Units		Weighted Average Grant-Date Fair Value
Nonvested balance as of January 1, 2019	131,621		$	21.02
Granted	95,265		23.64
Vested	(48,207	)	20.62
Forfeited	(1,744	)	23.67
Nonvested balance as of December 31, 2019	176,935		22.51
Granted (1)	75,345		26.10
Vested	(18,197	)	22.66
Forfeited	(6,304	)	22.14
Nonvested balance as of June 30, 2020	227,779		$	23.98

Share-based Payment Arrangement, Expensed and Capitalized, Amount

Share-based compensation expense related to restricted stock included in the unaudited Consolidated Statements of Income was as follows:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2020		2019		2020		2019
	(In Thousands)
Share-based compensation expense	$	516	$	410	$	933	$	728

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Securities (Tables)

6 Months Ended

Jun. 30, 2020

Investments, Debt and Equity Securities [Abstract]

Schedule of Available-for-sale Securities

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

	As of June 30, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Available-for-sale:
U.S. government agency securities - government-sponsored enterprises	$	22,023	$	15	$	(68	)	$	21,970
Municipal securities	11,081		390		—			11,471
Residential mortgage-backed securities - government issued	12,296		587		—			12,883
Residential mortgage-backed securities - government-sponsored enterprises	101,005		3,084		—			104,089
Commercial mortgage-backed securities - government issued	6,161		205		—			6,366
Commercial mortgage-backed securities - government-sponsored enterprises	11,854		750		—			12,604
Other securities	2,205		92		—			2,297
	$	166,625	$	5,123	$	(68	)	$	171,680

	As of December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Available-for-sale:
U.S. government agency securities - government-sponsored enterprises	$	23,616	$	152	$	(10	)	$	23,758
Municipal securities	160		—		—			160
Residential mortgage-backed securities - government issued	16,119		234		(5		)	16,348
Residential mortgage-backed securities - government-sponsored enterprises	111,561		847		(406		)	112,002
Commercial mortgage-backed securities - government issued	6,705		45		(87		)	6,663
Commercial mortgage-backed securities - government-sponsored enterprises	11,953		23		(9		)	11,967
Other securities	2,205		30		—			2,235
	$	172,319	$	1,331	$	(517	)	$	173,133

Schedule of Held-to-maturity Securities

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

	As of June 30, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Held-to-maturity:
Municipal securities	$	18,608	$	480	$	(26	)	$	19,062
Residential mortgage-backed securities - government issued	4,789		148		—			4,937
Residential mortgage-backed securities - government-sponsored enterprises	4,416		163		—			4,579
Commercial mortgage-backed securities - government-sponsored enterprises	2,013		296		—			2,309
	$	29,826	$	1,087	$	(26	)	$	30,887

	As of December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In Thousands)
Held-to-maturity:
Municipal securities	$	19,727	$	335	$	(8	)	$	20,054
Residential mortgage-backed securities - government issued	5,776		19		(9		)	5,786
Residential mortgage-backed securities - government-sponsored enterprises	5,183		51		(23		)	5,211
Commercial mortgage-backed securities - government-sponsored enterprises	2,014		123		—			2,137
	$	32,700	$	528	$	(40	)	$	33,188

Investments Classified by Contractual Maturity

The amortized cost and fair value of securities by contractual maturity at June 30, 2020 are shown below. Actual maturities may differ from contractual maturities because issuers have the right to call or prepay certain obligations with or without call or prepayment penalties.

	Available-for-Sale				Held-to-Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In Thousands)
Due in one year or less	$	1,000	$	1,003	$	2,556	$	2,578
Due in one year through five years	8,650		8,969		12,346		12,621
Due in five through ten years	35,048		36,655		11,283		11,904
Due in over ten years	121,927		125,053		3,641		3,784
	$	166,625	$	171,680	$	29,826	$	30,887

Schedule of Unrealized Loss on Investments

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

	As of June 30, 2020
	Less than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
Available-for-sale:
U.S. government agency securities - government-sponsored enterprises	$	16,403	$	68	$	—	$	—	$	16,403	$	68

	As of December 31, 2019
	Less than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
Available-for-sale:
U.S. government agency securities - government-sponsored enterprises	$	4,363	$	10	$	—	$	—	$	4,363	$	10
Residential mortgage-backed securities - government issued	4,619		5		—		—		4,619		5
Residential mortgage-backed securities - government-sponsored enterprises	36,972		253		11,304		153		48,276		406
Commercial mortgage-backed securities - government issued	—		—		4,727		87		4,727		87
Commercial mortgage-backed securities - government-sponsored enterprises	2,245		4		1,047		5		3,292		9
	$	48,199	$	272	$	17,078	$	245	$	65,277	$	517

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

	As of June 30, 2020
	Less than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
Held-to-maturity:
Municipal securities	$	479	$	26	$	—	$	—	$	479	$	26

	As of December 31, 2019
	Less than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
Held-to-maturity:
Municipal securities	$	499	$	8	$	—	$	—	$	499	$	8
Residential mortgage-backed securities - government issued	—		—		1,887		9		1,887		9
Residential mortgage-backed securities - government-sponsored enterprises	1,364		5		2,144		18		3,508		23
	$	1,863	$	13	$	4,031	$	27	$	5,894	$	40

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Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses (Tables)

6 Months Ended

Jun. 30, 2020

Receivables [Abstract]

Loan Composition Schedule

Loan and lease receivables consist of the following:

	June 30, 2020		December 31, 2019
	(In Thousands)
Commercial real estate:
Commercial real estate — owner occupied	$	229,994	$	226,614
Commercial real estate — non-owner occupied	533,211		516,652
Land development	44,299		51,097
Construction	133,375		109,057
Multi-family	244,496		217,322
1-4 family	36,823		33,359
Total commercial real estate	1,222,198		1,154,101
Commercial and industrial	781,239		503,402
Direct financing leases, net	25,525		28,203
Consumer and other:
Home equity and second mortgages	6,706		7,006
Other	29,737		22,664
Total consumer and other	36,443		29,670
Total gross loans and leases receivable	2,065,405		1,715,376
Less:
Allowance for loan and lease losses	27,464		19,520
Deferred loan fees	8,542		741
Loans and leases receivable, net	$	2,029,399	$	1,695,115

Ownership of SBA Loans

The total amount of the Corporation’s ownership of SBA loans comprised of the following:

	June 30, 2020		December 31, 2019
	(In Thousands)
SBA 7(a) loans	$	40,815	$	40,402
SBA 504 loans	23,479		20,592
SBA Express loans and lines of credit	1,549		1,781
SBA PPP loans	327,932		—
Total SBA loans	$	393,775	$	62,775

Financing Receivable by Credit Quality Indicators

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

	June 30, 2020
	Category
	I			II			III			IV			Total
	(Dollars in Thousands)
Commercial real estate:
Commercial real estate — owner occupied	$	170,546		$	26,515		$	25,430		$	7,503		$	229,994
Commercial real estate — non-owner occupied	458,069			55,494			19,648			—			533,211
Land development	42,922			328			—			1,049			44,299
Construction	122,392			10,983			—			—			133,375
Multi-family	220,688			23,808			—			—			244,496
1-4 family	32,687			1,682			2,072			382			36,823
Total commercial real estate	1,047,304			118,810			47,150			8,934			1,222,198
Commercial and industrial	658,377			41,156			66,672			15,034			781,239
Direct financing leases, net	18,661			214			6,601			49			25,525
Consumer and other:
Home equity and second mortgages	5,969			602			135			—			6,706
Other	29,425			185			—			127			29,737
Total consumer and other	35,394			787			135			127			36,443
Total gross loans and leases receivable	$	1,759,736		$	160,967		$	120,558		$	24,144		$	2,065,405
Category as a % of total portfolio	85.20		%	7.79		%	5.84		%	1.17		%	100.00		%

	December 31, 2019
	Category
	I			II			III			IV			Total
	(Dollars in Thousands)
Commercial real estate:
Commercial real estate — owner occupied	$	187,728		$	18,455		$	16,399		$	4,032		$	226,614
Commercial real estate — non-owner occupied	459,821			55,524			1,307			—			516,652
Land development	49,132			439			—			1,526			51,097
Construction	108,959			—			98			—			109,057
Multi-family	205,750			11,572			—			—			217,322
1-4 family	29,284			1,843			1,759			473			33,359
Total commercial real estate	1,040,674			87,833			19,563			6,031			1,154,101
Commercial and industrial	398,445			34,478			55,904			14,575			503,402
Direct financing leases, net	21,282			579			6,342			—			28,203
Consumer and other:
Home equity and second mortgages	6,307			610			89			—			7,006
Other	22,517			—			—			147			22,664
Total consumer and other	28,824			610			89			147			29,670
Total gross loans and leases receivable	$	1,489,225		$	123,500		$	81,898		$	20,753		$	1,715,376
Category as a % of total portfolio	86.82		%	7.20		%	4.77		%	1.21		%	100.00		%

Past Due Financing Receivables

The delinquency aging of the loan and lease portfolio by class of receivable was as follows:

	June 30, 2020
	30-59 Days Past Due			60-89 Days Past Due			Greater Than 90 Days Past Due			Total Past Due			Current			Total Loans and Leases
	(Dollars in Thousands)
Accruing loans and leases
Commercial real estate:
Owner occupied	$	—		$	—		$	—		$	—		$	222,491		$	222,491
Non-owner occupied	—			—			—			—			533,211			533,211
Land development	—			—			—			—			43,250			43,250
Construction	—			—			—			—			133,375			133,375
Multi-family	—			—			—			—			244,496			244,496
1-4 family	—			—			—			—			36,490			36,490
Commercial and industrial	5,965			1,320			—			7,285			758,920			766,205
Direct financing leases, net	—			—			—			—			25,476			25,476
Consumer and other:
Home equity and second mortgages	—			—			—			—			6,706			6,706
Other	—			—			—			—			29,610			29,610
Total	5,965			1,320			—			7,285			2,034,025			2,041,310
Non-accruing loans and leases
Commercial real estate:
Owner occupied	—			—			3,550			3,550			3,953			7,503
Non-owner occupied	—			—			—			—			—			—
Land development	—			—			—			—			1,049			1,049
Construction	—			—			—			—			—			—
Multi-family	—			—			—			—			—			—
1-4 family	—			—			333			333			—			333
Commercial and industrial	76			283			7,416			7,775			7,259			15,034
Direct financing leases, net	—			—			—			—			49			49
Consumer and other:
Home equity and second mortgages	—			—			—			—			—			—
Other	—			—			127			127			—			127
Total	76			283			11,426			11,785			12,310			24,095
Total loans and leases
Commercial real estate:
Owner occupied	—			—			3,550			3,550			226,444			229,994
Non-owner occupied	—			—			—			—			533,211			533,211
Land development	—			—			—			—			44,299			44,299
Construction	—			—			—			—			133,375			133,375
Multi-family	—			—			—			—			244,496			244,496
1-4 family	—			—			333			333			36,490			36,823
Commercial and industrial	6,041			1,603			7,416			15,060			766,179			781,239
Direct financing leases, net	—			—			—			—			25,525			25,525
Consumer and other:
Home equity and second mortgages	—			—			—			—			6,706			6,706
Other	—			—			127			127			29,610			29,737
Total	$	6,041		$	1,603		$	11,426		$	19,070		$	2,046,335		$	2,065,405
Percent of portfolio	0.29		%	0.08		%	0.55		%	0.92		%	99.08		%	100.00		%

	December 31, 2019
	30-59 Days Past Due			60-89 Days Past Due			Greater Than 90 Days Past Due			Total Past Due			Current			Total Loans and Leases
	(Dollars in Thousands)
Accruing loans and leases
Commercial real estate:
Owner occupied	$	—		$	—		$	—		$	—		$	222,582		$	222,582
Non-owner occupied	—			—			—			—			516,652			516,652
Land development	—			990			—			990			48,581			49,571
Construction	309			—			—			309			108,748			109,057
Multi-family	—			—			—			—			217,322			217,322
1-4 family	—			—			—			—			33,026			33,026
Commercial and industrial	2,707			52			—			2,759			486,068			488,827
Direct financing leases, net	—			—			—			—			28,203			28,203
Consumer and other:
Home equity and second mortgages	—			—			—			—			7,006			7,006
Other	—			—			—			—			22,517			22,517
Total	3,016			1,042			—			4,058			1,690,705			1,694,763
Non-accruing loans and leases
Commercial real estate:
Owner occupied	—			—			342			342			3,690			4,032
Non-owner occupied	—			—			—			—			—			—
Land development	—			—			—			—			1,526			1,526
Construction	—			—			—			—			—			—
Multi-family	—			—			—			—			—			—
1-4 family	—			333			—			333			—			333
Commercial and industrial	4,368			2,717			3,123			10,208			4,367			14,575
Direct financing leases, net	—			—			—			—			—			—
Consumer and other:
Home equity and second mortgages	—			—			—			—			—			—
Other	—			—			147			147			—			147
Total	4,368			3,050			3,612			11,030			9,583			20,613
Total loans and leases
Commercial real estate:
Owner occupied	—			—			342			342			226,272			226,614
Non-owner occupied	—			—			—			—			516,652			516,652
Land development	—			990			—			990			50,107			51,097
Construction	309			—			—			309			108,748			109,057
Multi-family	—			—			—			—			217,322			217,322
1-4 family	—			333			—			333			33,026			33,359
Commercial and industrial	7,075			2,769			3,123			12,967			490,435			503,402
Direct financing leases, net	—			—			—			—			28,203			28,203
Consumer and other:
Home equity and second mortgages	—			—			—			—			7,006			7,006
Other	—			—			147			147			22,517			22,664
Total	$	7,384		$	4,092		$	3,612		$	15,088		$	1,700,288		$	1,715,376
Percent of portfolio	0.43		%	0.24		%	0.21		%	0.88		%	99.12		%	100.00		%

Schedule of Financing Receivables, Non Accrual Status

The Corporation’s total impaired assets consisted of the following:

	June 30, 2020		December 31, 2019
	(In Thousands)
Non-accrual loans and leases
Commercial real estate:
Commercial real estate — owner occupied	$	7,503	$	4,032
Commercial real estate — non-owner occupied	—		—
Land development	1,049		1,526
Construction	—		—
Multi-family	—		—
1-4 family	333		333
Total non-accrual commercial real estate	8,885		5,891
Commercial and industrial	15,034		14,575
Direct financing leases, net	49		—
Consumer and other:
Home equity and second mortgages	—		—
Other	127		147
Total non-accrual consumer and other loans	127		147
Total non-accrual loans and leases	24,095		20,613
Foreclosed properties, net	1,389		2,919
Total non-performing assets	25,484		23,532
Performing troubled debt restructurings	49		140
Total impaired assets	$	25,533	$	23,672

	June 30, 2020		December 31, 2019
Total non-accrual loans and leases to gross loans and leases	1.17	%	1.20	%
Total non-performing assets to total gross loans and leases plus foreclosed properties, net	1.23		1.37
Total non-performing assets to total assets	1.03		1.12
Allowance for loan and lease losses to gross loans and leases	1.33		1.14
Allowance for loan and lease losses to non-accrual loans and leases	113.98		94.70

Troubled Debt Restructurings on Financing Receivables

The following table provides the number of loans modified in a troubled debt restructuring and the pre- and post-modification recorded investment by class of receivable:

	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2020
	Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment
	(Dollars in Thousands)
Commercial real estate:
Commercial real estate — owner occupied	—	$	—	$	—	2	$	299	$	272
Commercial and industrial	1	4,986		4,986		3	6,007		5,756
Total	1	$	4,986	$	4,986	5	$	6,306	$	6,028

	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2019
	Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment
	(Dollars in Thousands)
Commercial and industrial	9	$	5,281	$	5,281	13	$	7,359	$	7,284

Impaired Financing Receivables

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

	As of and for the Six Months Ended June 30, 2020
	Recorded Investment(1)		Unpaid Principal Balance			Impairment Reserve		Average Recorded Investment(2)			Foregone Interest Income			Interest Income Recognized		Net Foregone Interest Income
	(In Thousands)
With no impairment reserve recorded:
Commercial real estate:
Owner occupied	$	3,856	$	3,856		$	—	$	4,577		$	86		$	72	$	14
Non-owner occupied	—		—			—		53			—			—		—
Land development	1,049		5,346			—		1,442			19			—		19
Construction	—		—			—		—			—			—		—
Multi-family	—		—			—		—			—			—		—
1-4 family	382		387			—		433			21			70		(49		)
Commercial and industrial	5,328		7,273			—		14,291			550			316		234
Direct financing leases, net	—		—			—		4			—			—		—
Consumer and other:
Home equity and second mortgages	—		—			—		—			—			—		—
Other	127		794			—		137			22			—		22
Total	10,742		17,656			—		20,937			698			458		240
With impairment reserve recorded:
Commercial real estate:
Owner occupied	3,647		5,034			3,052		1,469			201			—		201
Non-owner occupied	—		—			—		—			—			—		—
Land development	—		—		—	—		—		—	—		—	—		—
Construction	—		—		—	—		—		—	—		—	—		—
Multi-family	—		—			—		—			—			—		—
1-4 family	—		—			—		—			—			—		—
Commercial and industrial	9,706		11,154			2,847		1,437			213			—		213
Direct financing leases, net	49		49			25		4			2			—		2
Consumer and other:
Home equity and second mortgages	—		—			—		—			—			—		—
Other	—		—			—		—			—			—		—
Total	13,402		16,237			5,924		2,910			416			—		416
Total:
Commercial real estate:
Owner occupied	7,503		8,890			3,052		6,046			287			72		215
Non-owner occupied	—		—			—		53			—			—		—
Land development	1,049		5,346			—		1,442			19			—		19
Construction	—		—			—		—			—			—		—
Multi-family	—		—			—		—			—			—		—
1-4 family	382		387			—		433			21			70		(49		)
Commercial and industrial	15,034		18,427			2,847		15,728			763			316		447
Direct financing leases, net	49		49			25		8			2			—		2
Consumer and other:
Home equity and second mortgages	—		—			—		—			—			—		—
Other	127		794			—		137			22			—		22
Grand total	$	24,144	$	33,893		$	5,924	$	23,847		$	1,114		$	458	$	656

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

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

	As of and for the Year Ended December 31, 2019
	Recorded Investment(1)		Unpaid Principal Balance		Impairment Reserve		Average Recorded Investment(2)		Foregone Interest Income		Interest Income Recognized		Net Foregone Interest Income
	(In Thousands)
With no impairment reserve recorded:
Commercial real estate:
Owner occupied	$	387	$	387	$	—	$	3,285	$	64	$	355	$	(291	)
Non-owner occupied	—		—		—		58		1		—		1
Land development	1,526		5,823		—		1,843		52		6		46
Construction	—		—		—		—		—		—		—
Multi-family	—		—		—		—		—		—		—
1-4 family	473		478		—		356		19		46		(27		)
Commercial and industrial	4,779		6,549		—		14,479		1,073		379		694
Direct financing leases, net	—		—		—		—		—		—		—
Consumer and other:
Home equity and second mortgages	—		—		—		—		—		7		(7		)
Other	147		813		—		191		48		—		48
Total	7,312		14,050		—		20,212		1,257		793		464
With impairment reserve recorded:
Commercial real estate:
Owner occupied	3,645		5,004		1,082		1,511		414		—		414
Non-owner occupied	—		—		—		—		—		—		—
Land development	—		—		—		—		—		—		—
Construction	—		—		—		—		—		—		—
Multi-family	—		—		—		—		—		—		—
1-4 family	—		—		—		—		—		—		—
Commercial and industrial	9,796		11,179		2,283		2,367		1,022		—		1,022
Direct financing leases, net	—		—		—		—		—		—		—
Consumer and other:
Home equity and second mortgages	—		—		—		—		—		—		—
Other	—		—		—		—		—		—		—
Total	13,441		16,183		3,365		3,878		1,436		—		1,436
Total:
Commercial real estate:
Owner occupied	4,032		5,391		1,082		4,796		478		355		123
Non-owner occupied	—		—		—		58		1		—		1
Land development	1,526		5,823		—		1,843		52		6		46
Construction	—		—		—		—		—		—		—
Multi-family	—		—		—		—		—		—		—
1-4 family	473		478		—		356		19		46		(27		)
Commercial and industrial	14,575		17,728		2,283		16,846		2,095		379		1,716
Direct financing leases, net	—		—		—		—		—		—		—
Consumer and other:
Home equity and second mortgages	—		—		—		—		—		7		(7		)
Other	147		813		—		191		48		—		48
Grand total	$	20,753	$	30,233	$	3,365	$	24,090	$	2,693	$	793	$	1,900

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

(2)

Average recorded investment is calculated primarily using daily average balances.

Allowance for Loan and Lease Losses by Portfolio Segment

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

	As of and for the Three Months Ended June 30, 2020
	Commercial Real Estate			Commercial and Industrial			Consumer and Other			Total
	(In Thousands)
Beginning balance	$	12,597		$	9,322		$	829		$	22,748
Charge-offs	(27		)	(784		)	(6		)	(817		)
Recoveries	2			62			—			64
Net charge-offs	(25		)	(722		)	(6		)	(753		)
Provision for loan and lease losses	3,866			1,579			24			5,469
Ending balance	$	16,438		$	10,179		$	847		$	27,464

	As of and for the Three Months Ended June 30, 2019
	Commercial Real Estate			Commercial and Industrial			Consumer and Other			Total
	(In Thousands)
Beginning balance	$	11,205		$	8,485		$	759		$	20,449
Charge-offs	—			(13		)	(2		)	(15		)
Recoveries	72			72			25			169
Net recoveries	72			59			23			154
Provision for loan and lease losses	(8		)	(652		)	(124		)	(784		)
Ending balance	$	11,269		$	7,892		$	658		$	19,819

	As of and for the Six Months Ended June 30, 2020
	Commercial Real Estate			Commercial and Industrial			Consumer and Other			Total
	(In Thousands)
Beginning balance	$	10,852		$	8,078		$	590		$	19,520
Charge-offs	(27		)	(909		)	(12		)	(948		)
Recoveries	3			238			—			241
Net charge-offs	(24		)	(671		)	(12		)	(707		)
Provision for loan and lease losses	5,610			2,772			269			8,651
Ending balance	$	16,438		$	10,179		$	847		$	27,464

	As of and for the Six Months Ended June 30, 2019
	Commercial Real Estate			Commercial and Industrial			Consumer and Other			Total
	(In Thousands)
Beginning balance	$	11,662		$	8,079		$	684		$	20,425
Charge-offs	—			(61		)	(2		)	(63		)
Recoveries	73			92			28			193
Net recoveries	73			31			26			130
Provision for loan and lease losses	(466		)	(218		)	(52		)	(736		)
Ending balance	$	11,269		$	7,892		$	658		$	19,819

Allowance for Loan and Lease Losses and Balances by Type of Allowance Methodology

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

	As of June 30, 2020
	Commercial Real Estate		Commercial and Industrial		Consumer and Other		Total
	(In Thousands)
Allowance for loan and lease losses:
Collectively evaluated for impairment	$	13,386	$	7,307	$	847	$	21,540
Individually evaluated for impairment	3,052		2,872		—		5,924
Total	$	16,438	$	10,179	$	847	$	27,464
Loans and lease receivables:
Collectively evaluated for impairment	$	1,213,264	$	791,681	$	36,316	$	2,041,261
Individually evaluated for impairment	8,934		15,083		127		24,144
Total	$	1,222,198	$	806,764	$	36,443	$	2,065,405

	As of December 31, 2019
	Commercial Real Estate		Commercial and Industrial		Consumer and Other		Total
	(In Thousands)
Allowance for loan and lease losses:
Collectively evaluated for impairment	$	9,770	$	5,795	$	590	$	16,155
Individually evaluated for impairment	1,082		2,283		—		3,365
Total	$	10,852	$	8,078	$	590	$	19,520
Loans and lease receivables:
Collectively evaluated for impairment	$	1,148,070	$	517,030	$	29,523	$	1,694,623
Individually evaluated for impairment	6,031		14,575		147		20,753
Total	$	1,154,101	$	531,605	$	29,670	$	1,715,376

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Leases (Tables)

6 Months Ended

Jun. 30, 2020

Leases [Abstract]

Lease expense

The components of total lease expense were as follows:

	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2020			2019		2020			2019
	(In Thousands)
Operating lease cost	$	372		$	391	$	745		$	781
Short-term lease cost	126			101		253			238
Variable lease cost	48			74		122			142
Less: sublease income	(28		)	—		(56		)	—
Total lease cost, net	$	518		$	566	$	1,064		$	1,161

Operating Lease Quantitative Information

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

	June 30, 2020		December 31, 2019
Weighted-average remaining lease term (in years)	5.87		6.56
Weighted-average discount rate	3.10	%	3.09	%

Operating Lease Maturity Analysis

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

(In Thousands)
2020	$	767
2021	1,382
2022	1,373
2023	1,015
2024	756
Thereafter	2,307
Total undiscounted cash flows	7,600
Discount on cash flows	(723		)
Total lease liability	$	6,877

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Other Assets (Tables)

6 Months Ended

Jun. 30, 2020

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Schedule of Other Assets

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

	June 30, 2020		December 31, 2019
	(In Thousands)
Accrued interest receivable	$	7,207	$	5,760
Net deferred tax asset	5,436		5,353
Investment in historic development entities	2,345		2,216
Investment in a community development entity	5,316		5,571
Investment in limited partnerships	4,973		4,476
Investment in Trust II	315		315
Fair value of interest rate swaps	58,808		18,346
Prepaid expenses	2,227		2,285
Other assets	8,464		4,184
Total accrued interest receivable and other assets	$	95,091	$	48,506

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Deposits (Tables)

6 Months Ended

Jun. 30, 2020

Deposits [Abstract]

Deposits

The composition of deposits is shown below. Average balances represent year to date averages.

	June 30, 2020						December 31, 2019
	Balance		Average Balance		Average Rate		Balance		Average Balance		Average Rate
	(Dollars in Thousands)
Non-interest-bearing transaction accounts	$	433,760	$	365,771	—	%	$	293,573	$	275,495	—	%
Interest-bearing transaction accounts	413,214		320,188		0.59		273,909		222,244		1.53
Money market accounts	656,741		653,598		0.68		674,409		617,341		1.71
Certificates of deposit	116,901		128,791		2.14		137,012		156,048		2.47
Wholesale deposits	89,759		119,032		2.50		151,476		225,302		2.27
Total deposits	$	1,710,375	$	1,587,380	0.76		$	1,530,379	$	1,496,430	1.53

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FHLB Advances, Other Borrowings and Junior Subordinated Notes Payable (Tables)

6 Months Ended

Jun. 30, 2020

Debt Disclosure [Abstract]

Schedule of Debt

The composition of borrowed funds is shown below. Average balances represent year to date averages.

	June 30, 2020						December 31, 2019
	Balance		Weighted Average Balance		Weighted Average Rate		Balance		Weighted Average Balance		Weighted Average Rate
	(Dollars in Thousands)
Federal funds purchased	$	—	$	143	0.69	%	$	—	$	59	2.45	%
Federal Reserve PPPLF	29,605		10,410		0.35		—		—		—
FHLB advances	411,000		367,604		1.55		295,000		286,464		2.17
Other borrowings	675		675		8.09		675		675		8.11
Subordinated notes payable(1)	23,727		23,715		5.95		23,707		24,502		7.45
Junior subordinated notes	10,054		10,050		11.04		10,047		10,040		11.08
	$	475,061	$	412,597	2.01		$	329,429	$	321,740	2.87
Short-term borrowings	$	202,500					$	118,500
Long-term borrowings	272,561						210,929
	$	475,061					$	329,429

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Commitments and Contingencies (Tables)

6 Months Ended

Jun. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

Summary of SBA Recourse Reserve

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

	As of and for the Three Months Ended June 30,						As of and for the Six Months Ended June 30,
	2020			2019			2020			2019
	(In Thousands)
Balance at the beginning of the period	$	1,086		$	3,276		$	1,345		$	2,956
SBA recourse (benefit) provision	(30		)	113			(5		)	594
Charge-offs, net	(49		)	(1,321		)	(333		)	(1,482		)
Balance at the end of the period	$	1,007		$	2,068		$	1,007		$	2,068

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Fair Value Disclosures (Tables)

6 Months Ended

Jun. 30, 2020

Fair Value Disclosures [Abstract]

Fair Value Measurements, Recurring Basis

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

	June 30, 2020
	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total
	(In Thousands)
Assets:
Securities available-for-sale:
U.S. government agency securities - government-sponsored enterprises	$	—	$	21,970	$	—	$	21,970
Municipal securities	—		11,471		—		11,471
Residential mortgage-backed securities - government issued	—		12,883		—		12,883
Residential mortgage-backed securities - government-sponsored enterprises	—		104,089		—		104,089
Commercial mortgage-backed securities - government issued	—		6,366		—		6,366
Commercial mortgage-backed securities - government-sponsored enterprises	—		12,604		—		12,604
Other securities	—		2,297		—		2,297
Interest rate swaps	—		58,808		—		58,808
Liabilities:
Interest rate swaps	—		65,390		—		65,390

	December 31, 2019
	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total
	(In Thousands)
Assets:
Securities available-for-sale:
U.S. government agency securities - government-sponsored enterprises	$	—	$	23,758	$	—	$	23,758
Municipal securities	—		160		—		160
Residential mortgage-backed securities - government issued	—		16,348		—		16,348
Residential mortgage-backed securities - government-sponsored enterprises	—		112,002		—		112,002
Commercial mortgage-backed securities - government issued	—		6,663		—		6,663
Commercial mortgage-backed securities - government-sponsored enterprises	—		11,967		—		11,967
Other securities	—		2,235		—		2,235
Interest rate swaps	—		18,346		—		18,346
Liabilities:
Interest rate swaps	—		20,885		—		20,885

Fair Value Measurements, Nonrecurring Basis

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

	June 30, 2020
	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total
	(In Thousands)
Impaired loans	$	—	$	—	$	13,203	$	13,203
Foreclosed properties	—		—		1,389		1,389
Loan servicing rights	—		—		1,216		1,216

	December 31, 2019
	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total
	(In Thousands)
Impaired loans	$	—	$	—	$	15,699	$	15,699
Foreclosed properties	—		—		2,919		2,919
Loan servicing rights	—		—		1,195		1,195

Fair Value, by Balance Sheet Grouping

Fair value estimates, methods, and assumptions, consistent with exit price concepts for fair value measurements, are set forth below:

	June 30, 2020
	Carrying Amount		Fair Value
			Total		Level 1		Level 2		Level 3
	(In Thousands)
Financial assets:
Cash and cash equivalents	$	42,391	$	42,391	$	42,391	$	—	$	—
Securities available-for-sale	171,680		171,680		—		171,680		—
Securities held-to-maturity	29,826		30,887		—		30,887		—
Loans held for sale	13,672		14,902		—		14,902		—
Loans and lease receivables, net	2,029,399		2,027,279		—		—		2,027,279
Federal Home Loan Bank stock	13,470		N/A		N/A		N/A		N/A
Accrued interest receivable	7,207		7,207		7,207		—		—
Interest rate swaps	58,808		58,808		—		58,808		—
Financial liabilities:
Deposits	1,710,375		1,713,277		1,503,715		209,562		—
Federal Home Loan Bank advances and other borrowings	465,007		475,173		—		475,173		—
Junior subordinated notes	10,054		9,978		—		—		9,978
Accrued interest payable	2,012		2,012		2,012		—		—
Interest rate swaps	65,390		65,390		—		65,390		—
Off-balance sheet items:
Standby letters of credit	53		53		—		—		53

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

	December 31, 2019
	Carrying Amount		Fair Value
			Total		Level 1		Level 2		Level 3
	(In Thousands)
Financial assets:
Cash and cash equivalents	$	67,102	$	67,102	$	61,202	$	5,900	$	—
Securities available-for-sale	173,133		173,133		—		173,133		—
Securities held-to-maturity	32,700		33,188		—		33,188		—
Loans held for sale	5,205		5,673		—		5,673		—
Loans and lease receivables, net	1,695,115		1,706,201		—		—		1,706,201
Federal Home Loan Bank stock	7,953		N/A		N/A		N/A		N/A
Accrued interest receivable	5,760		5,760		5,760		—		—
Interest rate swaps	18,346		18,346		—		18,346		—
Financial liabilities:
Deposits	1,530,379		1,532,517		1,241,891		290,626		—
Federal Home Loan Bank advances and other borrowings	319,382		319,507		—		319,507		—
Junior subordinated notes	10,047		9,970		—		—		9,970
Accrued interest payable	2,882		2,282		2,282		—		—
Interest rate swaps	20,885		20,885		—		20,885		—
Off-balance sheet items:
Standby letters of credit	63		63		—		—		63

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Derivative Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of Derivative Instruments in Statement of Financial Position, Fair Value

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

	Interest Rate Swap Contracts
	Asset Derivatives			Liability Derivatives
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
	(In Thousands)
Derivatives not designated as hedging instruments
June 30, 2020	Accrued interest receivable and other assets	$	58,808	Accrued interest payable and other liabilities	$	58,808
December 31, 2019	Accrued interest receivable and other assets	$	18,346	Accrued interest payable and other liabilities	$	18,346
Derivatives designated as hedging instruments
June 30, 2020	Accumulated other comprehensive income (1)	$	6,582	Accrued interest payable and other liabilities	$	6,582
December 31, 2019	Accumulated other comprehensive income (1)	$	2,539	Accrued interest payable and other liabilities	$	2,539

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Regulatory Capital (Tables)

6 Months Ended

Jun. 30, 2020

Broker-Dealer, Net Capital Requirement, SEC Regulation [Abstract]

Schedule of Compliance with Regulatory Capital Requirements under Banking Regulations

The following tables summarize both the Corporation’s and the Bank’s capital ratios and the ratios required by their federal regulators:

	As of June 30, 2020
	Actual				Minimum Required for Capital Adequacy Purposes				For Capital Adequacy Purposes Plus Capital Conservation Buffer				Minimum Required to Be Well Capitalized Under Prompt Corrective Action Requirements
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount	Ratio
	(Dollars in Thousands)
Total capital (to risk-weighted assets)
Consolidated	$	247,276	11.97	%	$	165,275	8.00	%	$	216,924	10.50	%	N/A	N/A
First Business Bank	238,138		11.60		164,225		8.00		215,545		10.50		205,281	10.00	%
Tier 1 capital (to risk-weighted assets)
Consolidated	$	197,692	9.57	%	$	123,956	6.00	%	$	175,605	8.50	%	N/A	N/A
First Business Bank	212,443		10.35		123,169		6.00		174,489		8.50		164,225	8.00
Common equity tier 1 capital (to risk-weighted assets)
Consolidated	$	187,638	9.08	%	$	92,967	4.50	%	$	144,616	7.00	%	N/A	N/A
First Business Bank	212,443		10.35		92,376		4.50		143,697		7.00		133,433	6.50
Tier 1 leverage capital (to adjusted assets)
Consolidated	$	197,692	8.29	%	$	95,431	4.00	%	$	95,431	4.00	%	N/A	N/A
First Business Bank	212,443		8.96		94,856		4.00		94,856		4.00		118,570	5.00

	As of December 31, 2019
	Actual				Minimum Required for Capital Adequacy Purposes				For Capital Adequacy Purposes Plus Capital Conservation Buffer				Minimum Required to Be Well Capitalized Under Prompt Corrective Action Requirements
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount	Ratio
	(Dollars in Thousands)
Total capital (to risk-weighted assets)
Consolidated	$	239,029	12.01	%	$	159,185	8.00	%	$	208,930	10.50	%	N/A	N/A
First Business Bank	233,181		11.79		158,177		8.00		207,607		10.50		197,721	10.00	%
Tier 1 capital (to risk-weighted assets)
Consolidated	$	194,456	9.77	%	$	119,388	6.00	%	$	169,134	8.50	%	N/A	N/A
First Business Bank	212,315		10.74		118,633		6.00		168,063		8.50		158,177	8.00
Common equity tier 1 capital (to risk-weighted assets)
Consolidated	$	184,409	9.27	%	$	89,541	4.50	%	$	139,286	7.00	%	N/A	N/A
First Business Bank	212,315		10.74		88,974		4.50		138,405		7.00		128,519	6.50
Tier 1 leverage capital (to adjusted assets)
Consolidated	$	194,456	9.27	%	$	83,950	4.00	%	$	83,950	4.00	%	N/A	N/A
First Business Bank	212,315		10.18		83,414		4.00		83,414		4.00		104,268	5.00

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Significant Events Segment Exposure (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Loans and Leases Receivable Disclosure
Loans and Leases Receivable, before Fees, Gross	$ 2,065,405	$ 1,715,376
Hospitality, entertainment and restaurants, and food services
Loans and Leases Receivable Disclosure
Loans and Leases Receivable, before Fees, Gross	$ 185,100
Percentage of total gross loans and leases receivable	10.70%

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Significant Events Narrative (Details)	6 Months Ended
	Jun. 30, 2020 USD ($)
Significant Events [Abstract]
Increase in Loans and Leases Receivable, Allowance	$ 7,900,000
Percent Increase in Loans and Leases Receivable, Allowance	40.70%
Financing Receivable, Allowance for Credit Losses, Increase due to Economic Conditions	$ 4,300,000
Financing Receivable, Allowance for Credit Losses, Increase Due to Qualitative Factors	$ 953,000

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Significant Events CARES Act (Details)	3 Months Ended	6 Months Ended
	Jun. 30, 2020 USD ($)	Jun. 30, 2020 USD ($)
Significant Events [Abstract]
Number of Short-Term Loan Modifications	448	448
Gross Loans and Leases Outstanding, Short-Term Modification	$ 323,200,000	$ 323,200,000
Gross Loans and Leases Outstanding, Short-Term Modification, Percent 6 Month Deferral Period	60.20%	60.20%
Paycheck Protection Program Loan Applications Processed	700	700
SBA Paycheck Protection Program Loans Issued, Gross Amount	$ 327,900,000	$ 327,900,000
Payment Protection Program Fee Income		$ 8,700,000
SBA Paycheck Protection Program Interest Income, Loans	$ 859,000

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Earnings Per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended				6 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2020	Jun. 30, 2019
Basic earnings per common share
Net income	$ 3,323	$ 3,278	$ 6,572	$ 5,899	$ 6,601	$ 12,472
Less: earnings allocated to participating securities	93		151		173	239
Basic earnings allocated to common stockholders	$ 3,230		$ 6,421		$ 6,428	$ 12,233
Weighted-average common shares outstanding, excluding participating securities	8,392,197		8,569,581		8,379,696	8,584,444
Basic earnings per common share	$ 0.38		$ 0.75		$ 0.77	$ 1.43
Diluted earnings per common share
Diluted earnings allocated to common shareholders	$ 3,230		$ 6,421		$ 6,428	$ 12,233
Weighted-average diluted common shares outstanding, excluding participating securities	8,392,197		8,569,581		8,379,696	8,584,444
Diluted earnings per common share	$ 0.38		$ 0.75		$ 0.77	$ 1.43

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Share-Based Compensation (Restricted Share Activity) (Details) - $ / shares	6 Months Ended	12 Months Ended
	Jun. 30, 2020	Dec. 31, 2019
Number of Restricted Shares
Nonvested balance, beginning	176,935	131,621
Granted	75,345	95,265
Vested	(18,197)	(48,207)
Forfeited	(6,304)	(1,744)
Nonvested balance, ending	227,779	176,935
Weighted Average Grant-Date Fair Value
Nonvested balance, beginning	$ 22.51	$ 21.02
Granted (1)	26.10	23.64
Vested	22.66	20.62
Forfeited	22.14	23.67
Nonvested balance, ending	$ 23.98	$ 22.51

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Share-Based Compensation Share-Based Compensation (Compensation Expense) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Share-based Payment Arrangement [Abstract]
Share-based compensation	$ 516	$ 410	$ 933	$ 728

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Share-Based Compensation (Narrative Disclosures) (Details) $ in Millions	6 Months Ended
	Jun. 30, 2020 USD ($) shares
Share-based Payment Arrangement [Abstract]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant | shares	147,489
Deferred compensation expense yet to be recognized | $	$ 4.3
Period of time that deferred compensation expense will be recognized	2 years 6 months

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Securities (Available-for-Sale Securities) (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Schedule of Available-for-sale Securities
Amortized cost	$ 166,625	$ 172,319
Gross unrealized holding gains	5,123	1,331
Gross unrealized holding losses	(68)	(517)
Fair Value	171,680	173,133
Municipal securities
Schedule of Available-for-sale Securities
Amortized cost	11,081	160
Gross unrealized holding gains	390	0
Gross unrealized holding losses	0	0
Fair Value	11,471	160
Other securities
Schedule of Available-for-sale Securities
Amortized cost	2,205	2,205
Gross unrealized holding gains	92	30
Gross unrealized holding losses	0	0
Fair Value	2,297	2,235
Government Sponsored Enterprises | Other agency securities
Schedule of Available-for-sale Securities
Amortized cost	22,023	23,616
Gross unrealized holding gains	15	152
Gross unrealized holding losses	(68)	(10)
Fair Value	21,970	23,758
Government Sponsored Enterprises | Residential mortgage-backed securities
Schedule of Available-for-sale Securities
Amortized cost	101,005	111,561
Gross unrealized holding gains	3,084	847
Gross unrealized holding losses	0	(406)
Fair Value	104,089	112,002
Government Sponsored Enterprises | Commercial mortgage-backed securities
Schedule of Available-for-sale Securities
Amortized cost	11,854	11,953
Gross unrealized holding gains	750	23
Gross unrealized holding losses	0	(9)
Fair Value	12,604	11,967
GNMA | Residential mortgage-backed securities
Schedule of Available-for-sale Securities
Amortized cost	12,296	16,119
Gross unrealized holding gains	587	234
Gross unrealized holding losses	0	(5)
Fair Value	12,883	16,348
GNMA | Commercial mortgage-backed securities
Schedule of Available-for-sale Securities
Amortized cost	6,161	6,705
Gross unrealized holding gains	205	45
Gross unrealized holding losses	0	(87)
Fair Value	$ 6,366	$ 6,663

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Securities (Held-to-Maturity Securities) (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Schedule of Held-to-maturity Securities
Amortized cost	$ 29,826	$ 32,700
Gross unrecognized holding gains	1,087	528
Gross unrecognized holding losses	26	40
Estimated Fair Value	30,887	33,188
Municipal securities
Schedule of Held-to-maturity Securities
Amortized cost	18,608	19,727
Gross unrecognized holding gains	480	335
Gross unrecognized holding losses	26	8
Estimated Fair Value	19,062	20,054
GNMA | Residential mortgage-backed securities
Schedule of Held-to-maturity Securities
Amortized cost	4,789	5,776
Gross unrecognized holding gains	148	19
Gross unrecognized holding losses	0	9
Estimated Fair Value	4,937	5,786
Government Sponsored Enterprises | Residential mortgage-backed securities
Schedule of Held-to-maturity Securities
Amortized cost	4,416	5,183
Gross unrecognized holding gains	163	51
Gross unrecognized holding losses	0	23
Estimated Fair Value	4,579	5,211
Government Sponsored Enterprises | Commercial mortgage-backed securities
Schedule of Held-to-maturity Securities
Amortized cost	2,013	2,014
Gross unrecognized holding gains	296	123
Gross unrecognized holding losses	0	0
Estimated Fair Value	$ 2,309	$ 2,137

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Securities (Contractual Maturity) (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Available-for-Sale, Amortized Cost
Due in one year or less	$ 1,000
Due in one year through five years	8,650
Due in five through ten years	35,048
Due in over ten years	121,927
Amortized cost	166,625	$ 172,319
Available-for-Sale, Estimated Fair Value
Due in one year or less	1,003
Due in one year through five years	8,969
Due in five through ten years	36,655
Due in over ten years	125,053
Estimated fair value	171,680	173,133
Held-to-Maturity, Amortized Cost
Due in one year or less	2,556
Due in one year through five years	12,346
Due in five through ten years	11,283
Due in over ten years	3,641
Amortized cost	29,826	32,700
Held-to-Maturity, Estimated Fair Value
Due in one year or less	2,578
Due in one year through five years	12,621
Due in five through ten years	11,904
Due in over ten years	3,784
Estimated Fair Value	$ 30,887	$ 33,188

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Securities (Unrealized Losses Available for Sale) (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Fair Value
Fair Value Less than 12 Months		$ 48,199
Fair Value 12 Months or Longer		17,078
Total Fair Value		65,277
Unrealized Loss Less than 12 Months		272
Unrealized Loss 12 Months or Longer		245
Total Unrealized Loss		517
Government Sponsored Enterprises | Other agency securities
Fair Value
Fair Value Less than 12 Months	$ 16,403	4,363
Fair Value 12 Months or Longer	0	0
Total Fair Value	16,403	4,363
Unrealized Loss Less than 12 Months	68	10
Unrealized Loss 12 Months or Longer	0	0
Total Unrealized Loss	$ 68	10
Government Sponsored Enterprises | Residential mortgage-backed securities
Fair Value
Fair Value Less than 12 Months		36,972
Fair Value 12 Months or Longer		11,304
Total Fair Value		48,276
Unrealized Loss Less than 12 Months		253
Unrealized Loss 12 Months or Longer		153
Total Unrealized Loss		406
Government Sponsored Enterprises | Commercial mortgage-backed securities
Fair Value
Fair Value Less than 12 Months		2,245
Fair Value 12 Months or Longer		1,047
Total Fair Value		3,292
Unrealized Loss Less than 12 Months		4
Unrealized Loss 12 Months or Longer		5
Total Unrealized Loss		9
GNMA | Residential mortgage-backed securities
Fair Value
Fair Value Less than 12 Months		4,619
Fair Value 12 Months or Longer		0
Total Fair Value		4,619
Unrealized Loss Less than 12 Months		5
Unrealized Loss 12 Months or Longer		0
Total Unrealized Loss		5
GNMA | Commercial mortgage-backed securities
Fair Value
Fair Value Less than 12 Months		0
Fair Value 12 Months or Longer		4,727
Total Fair Value		4,727
Unrealized Loss Less than 12 Months		0
Unrealized Loss 12 Months or Longer		87
Total Unrealized Loss		$ 87

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Securities (Unrealized Losses Held-to-Maturity) (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Fair Value
Fair Value Less than 12 months		$ 1,863
Fair Value 12 months or longer		4,031
Total Fair Value		5,894
Unrealized Loss Less than 12 months		13
Unrealized Loss 12 months or longer		27
Total Unrealized Loss		40
Municipal securities
Fair Value
Fair Value Less than 12 months	$ 479	499
Fair Value 12 months or longer	0	0
Total Fair Value	479	499
Unrealized Loss Less than 12 months	26	8
Unrealized Loss 12 months or longer	0	0
Total Unrealized Loss	$ 26	8
GNMA | Residential mortgage-backed securities
Fair Value
Fair Value Less than 12 months		0
Fair Value 12 months or longer		1,887
Total Fair Value		1,887
Unrealized Loss Less than 12 months		0
Unrealized Loss 12 months or longer		9
Total Unrealized Loss		9
Government Sponsored Enterprises | Residential mortgage-backed securities
Fair Value
Fair Value Less than 12 months		1,364
Fair Value 12 months or longer		2,144
Total Fair Value		3,508
Unrealized Loss Less than 12 months		5
Unrealized Loss 12 months or longer		18
Total Unrealized Loss		$ 23

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Securities (Narrative Disclosures) (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020 USD ($) securities	Jun. 30, 2019 USD ($) securities	Jun. 30, 2020 USD ($) securities	Jun. 30, 2019 USD ($) securities	Dec. 31, 2019 USD ($)
Investments, Debt and Equity Securities [Abstract]
Number of available-for-sale securities sold	0	9,000	1	9
Securities pledged to secure various obligations | $	$ 182,000		$ 182,000		$ 30,300
Number of available-for-sales securities in an unrealized loss position	6		6
Number of available-for-sale securities in an unrealized loss position, twelve months or greater	0		0
Other than temporary impairment on available-for-sale securities recorded on the income statement | $	$ 0	$ 0	$ 0	$ 0
Number of held-to-maturity securities in an unrealized loss position	2		2
Number of held-to-maturity Securities in an unrealized loss position, twelve months or greater	0		0
Other than temporary impairment on held-to-maturity securities recorded on the income statement | $	$ 0	$ 0	$ 0	$ 0

XML

Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses (Loan Composition) (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Mar. 31, 2020	Dec. 31, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018
Loans and Leases Receivable Disclosure
Loans and Leases Receivable, before Fees, Gross	$ 2,065,405		$ 1,715,376
Allowance for loan and lease losses	27,464	$ 22,748	19,520	$ 19,819	$ 20,449	$ 20,425
Deferred loan fees	8,542		741
Loans and leases receivable, net amount	2,029,399		1,695,115
Commercial real estate — owner occupied
Loans and Leases Receivable Disclosure
Loans and Leases Receivable, before Fees, Gross	229,994		226,614
Commercial real estate — non-owner occupied
Loans and Leases Receivable Disclosure
Loans and Leases Receivable, before Fees, Gross	533,211		516,652
Land development
Loans and Leases Receivable Disclosure
Loans and Leases Receivable, before Fees, Gross	44,299		51,097
Construction
Loans and Leases Receivable Disclosure
Loans and Leases Receivable, before Fees, Gross	133,375		109,057
Multi-family
Loans and Leases Receivable Disclosure
Loans and Leases Receivable, before Fees, Gross	244,496		217,322
1-4 family
Loans and Leases Receivable Disclosure
Loans and Leases Receivable, before Fees, Gross	36,823		33,359
Total commercial real estate
Loans and Leases Receivable Disclosure
Loans and Leases Receivable, before Fees, Gross	1,222,198		1,154,101
Allowance for loan and lease losses	16,438	12,597	10,852	11,269	11,205	11,662
Commercial and industrial
Loans and Leases Receivable Disclosure
Loans and Leases Receivable, before Fees, Gross	781,239		503,402
Direct financing leases, net
Loans and Leases Receivable Disclosure
Loans and Leases Receivable, before Fees, Gross	25,525		28,203
Home equity and second mortgages
Loans and Leases Receivable Disclosure
Loans and Leases Receivable, before Fees, Gross	6,706		7,006
Other
Loans and Leases Receivable Disclosure
Loans and Leases Receivable, before Fees, Gross	29,737		22,664
Total consumer and other
Loans and Leases Receivable Disclosure
Loans and Leases Receivable, before Fees, Gross	36,443		29,670
Allowance for loan and lease losses	$ 847	$ 829	$ 590	$ 658	$ 759	$ 684

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Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses (SBA Loans) (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Receivables [Abstract]
SBA 7(a) loans	$ 40,815	$ 40,402
SBA 504 Loans	23,479	20,592
SBA Express Loans and lines of credit	1,549	1,781
SBA PPP loans	327,932	0
Total SBA loans	$ 393,775	$ 62,775

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Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses (Loans by Credit Quality Indicator) (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	$ 2,065,405	$ 1,715,376
Category as a % of total portfolio	100.00%	100.00%
Category I
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	$ 1,759,736	$ 1,489,225
Category as a % of total portfolio	85.20%	86.82%
Category II
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	$ 160,967	$ 123,500
Category as a % of total portfolio	7.79%	7.20%
Category III
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	$ 120,558	$ 81,898
Category as a % of total portfolio	5.84%	4.77%
Category IV
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	$ 24,144	$ 20,753
Category as a % of total portfolio	1.17%	1.21%
Commercial real estate — owner occupied
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	$ 229,994	$ 226,614
Commercial real estate — owner occupied | Category I
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	170,546	187,728
Commercial real estate — owner occupied | Category II
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	26,515	18,455
Commercial real estate — owner occupied | Category III
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	25,430	16,399
Commercial real estate — owner occupied | Category IV
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	7,503	4,032
Commercial real estate — non-owner occupied
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	533,211	516,652
Commercial real estate — non-owner occupied | Category I
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	458,069	459,821
Commercial real estate — non-owner occupied | Category II
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	55,494	55,524
Commercial real estate — non-owner occupied | Category III
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	19,648	1,307
Commercial real estate — non-owner occupied | Category IV
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	0	0
Land development
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	44,299	51,097
Land development | Category I
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	42,922	49,132
Land development | Category II
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	328	439
Land development | Category III
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	0	0
Land development | Category IV
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	1,049	1,526
Construction
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	133,375	109,057
Construction | Category I
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	122,392	108,959
Construction | Category II
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	10,983	0
Construction | Category III
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	0	98
Construction | Category IV
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	0	0
Multi-family
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	244,496	217,322
Multi-family | Category I
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	220,688	205,750
Multi-family | Category II
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	23,808	11,572
Multi-family | Category III
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	0	0
Multi-family | Category IV
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	0	0
1-4 family
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	36,823	33,359
1-4 family | Category I
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	32,687	29,284
1-4 family | Category II
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	1,682	1,843
1-4 family | Category III
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	2,072	1,759
1-4 family | Category IV
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	382	473
Total commercial real estate
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	1,222,198	1,154,101
Total commercial real estate | Category I
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	1,047,304	1,040,674
Total commercial real estate | Category II
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	118,810	87,833
Total commercial real estate | Category III
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	47,150	19,563
Total commercial real estate | Category IV
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	8,934	6,031
Commercial and industrial
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	781,239	503,402
Commercial and industrial | Category I
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	658,377	398,445
Commercial and industrial | Category II
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	41,156	34,478
Commercial and industrial | Category III
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	66,672	55,904
Commercial and industrial | Category IV
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	15,034	14,575
Direct financing leases, net
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	25,525	28,203
Direct financing leases, net | Category I
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	18,661	21,282
Direct financing leases, net | Category II
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	214	579
Direct financing leases, net | Category III
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	6,601	6,342
Direct financing leases, net | Category IV
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	49	0
Home equity and second mortgages
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	6,706	7,006
Home equity and second mortgages | Category I
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	5,969	6,307
Home equity and second mortgages | Category II
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	602	610
Home equity and second mortgages | Category III
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	135	89
Home equity and second mortgages | Category IV
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	0	0
Other
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	29,737	22,664
Other | Category I
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	29,425	22,517
Other | Category II
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	185	0
Other | Category III
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	0	0
Other | Category IV
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	127	147
Total consumer and other
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	36,443	29,670
Total consumer and other | Category I
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	35,394	28,824
Total consumer and other | Category II
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	787	610
Total consumer and other | Category III
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	135	89
Total consumer and other | Category IV
Financing Receivable, Recorded Investment
Loans and Leases Receivable, before Fees, Gross	$ 127	$ 147

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Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses (Past Due Loans) (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	$ 19,070	$ 15,088
Current	2,046,335	1,700,288
Non-accrual loans and leases	24,095	20,613
Loans and Leases Receivable, before Fees, Gross	$ 2,065,405	$ 1,715,376
30 to 59 days past due, percent of total portfolio	0.29%	0.43%
60 to 89 days past due, percent of total portfolio	0.08%	0.24%
Greater than 90 days past due, percent of portfolio	0.55%	0.21%
Past due, percent of total portfolio	0.92%	0.88%
Current, percent of total portfolio	99.08%	99.12%
Gross loans, percent of total portfolio	100.00%	100.00%
Commercial real estate — owner occupied
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	$ 3,550	$ 342
Current	226,444	226,272
Non-accrual loans and leases	7,503	4,032
Loans and Leases Receivable, before Fees, Gross	229,994	226,614
Commercial real estate — non-owner occupied
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Current	533,211	516,652
Non-accrual loans and leases	0	0
Loans and Leases Receivable, before Fees, Gross	533,211	516,652
Land development
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	990
Current	44,299	50,107
Non-accrual loans and leases	1,049	1,526
Loans and Leases Receivable, before Fees, Gross	44,299	51,097
Construction
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	309
Current	133,375	108,748
Non-accrual loans and leases	0	0
Loans and Leases Receivable, before Fees, Gross	133,375	109,057
Multi-family
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Current	244,496	217,322
Non-accrual loans and leases	0	0
Loans and Leases Receivable, before Fees, Gross	244,496	217,322
1-4 family
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	333	333
Current	36,490	33,026
Non-accrual loans and leases	333	333
Loans and Leases Receivable, before Fees, Gross	36,823	33,359
Commercial and industrial
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	15,060	12,967
Current	766,179	490,435
Non-accrual loans and leases	15,034	14,575
Loans and Leases Receivable, before Fees, Gross	781,239	503,402
Direct financing leases, net
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Current	25,525	28,203
Non-accrual loans and leases	49	0
Loans and Leases Receivable, before Fees, Gross	25,525	28,203
Home equity and second mortgages
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Current	6,706	7,006
Non-accrual loans and leases	0	0
Loans and Leases Receivable, before Fees, Gross	6,706	7,006
Other
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	127	147
Current	29,610	22,517
Non-accrual loans and leases	127	147
Loans and Leases Receivable, before Fees, Gross	29,737	22,664
Accruing loans and leases
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	7,285	4,058
Current	2,034,025	1,690,705
Accrual loans and leases	2,041,310	1,694,763
Accruing loans and leases | Commercial real estate — owner occupied
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Current	222,491	222,582
Accrual loans and leases	222,491	222,582
Accruing loans and leases | Commercial real estate — non-owner occupied
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Current	533,211	516,652
Accrual loans and leases	533,211	516,652
Accruing loans and leases | Land development
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	990
Current	43,250	48,581
Accrual loans and leases	43,250	49,571
Accruing loans and leases | Construction
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	309
Current	133,375	108,748
Accrual loans and leases	133,375	109,057
Accruing loans and leases | Multi-family
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Current	244,496	217,322
Accrual loans and leases	244,496	217,322
Accruing loans and leases | 1-4 family
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Current	36,490	33,026
Accrual loans and leases	36,490	33,026
Accruing loans and leases | Commercial and industrial
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	7,285	2,759
Current	758,920	486,068
Accrual loans and leases	766,205	488,827
Accruing loans and leases | Direct financing leases, net
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Current	25,476	28,203
Accrual loans and leases	25,476	28,203
Accruing loans and leases | Home equity and second mortgages
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Current	6,706	7,006
Accrual loans and leases	6,706	7,006
Accruing loans and leases | Other
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Current	29,610	22,517
Accrual loans and leases	29,610	22,517
Non-accruing loans and leases
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	11,785	11,030
Current	12,310	9,583
Non-accrual loans and leases	24,095	20,613
Non-accruing loans and leases | Commercial real estate — owner occupied
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	3,550	342
Current	3,953	3,690
Non-accrual loans and leases	7,503	4,032
Non-accruing loans and leases | Commercial real estate — non-owner occupied
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Current	0	0
Non-accrual loans and leases	0	0
Non-accruing loans and leases | Land development
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Current	1,049	1,526
Non-accrual loans and leases	1,049	1,526
Non-accruing loans and leases | Construction
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Current	0	0
Non-accrual loans and leases	0	0
Non-accruing loans and leases | Multi-family
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Current	0	0
Non-accrual loans and leases	0	0
Non-accruing loans and leases | 1-4 family
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	333	333
Current	0	0
Non-accrual loans and leases	333	333
Non-accruing loans and leases | Commercial and industrial
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	7,775	10,208
Current	7,259	4,367
Non-accrual loans and leases	15,034	14,575
Non-accruing loans and leases | Direct financing leases, net
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Current	49	0
Non-accrual loans and leases	49	0
Non-accruing loans and leases | Home equity and second mortgages
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Current	0	0
Non-accrual loans and leases	0	0
Non-accruing loans and leases | Other
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	127	147
Current	0	0
Non-accrual loans and leases	127	147
30-59 days past due
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	6,041	7,384
30-59 days past due | Commercial real estate — owner occupied
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
30-59 days past due | Commercial real estate — non-owner occupied
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
30-59 days past due | Land development
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
30-59 days past due | Construction
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	309
30-59 days past due | Multi-family
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
30-59 days past due | 1-4 family
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
30-59 days past due | Commercial and industrial
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	6,041	7,075
30-59 days past due | Direct financing leases, net
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
30-59 days past due | Home equity and second mortgages
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
30-59 days past due | Other
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
30-59 days past due | Accruing loans and leases
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	5,965	3,016
30-59 days past due | Accruing loans and leases | Commercial real estate — owner occupied
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
30-59 days past due | Accruing loans and leases | Commercial real estate — non-owner occupied
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
30-59 days past due | Accruing loans and leases | Land development
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
30-59 days past due | Accruing loans and leases | Construction
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	309
30-59 days past due | Accruing loans and leases | Multi-family
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
30-59 days past due | Accruing loans and leases | 1-4 family
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
30-59 days past due | Accruing loans and leases | Commercial and industrial
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	5,965	2,707
30-59 days past due | Accruing loans and leases | Direct financing leases, net
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
30-59 days past due | Accruing loans and leases | Home equity and second mortgages
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
30-59 days past due | Accruing loans and leases | Other
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
30-59 days past due | Non-accruing loans and leases
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	76	4,368
30-59 days past due | Non-accruing loans and leases | Commercial real estate — owner occupied
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
30-59 days past due | Non-accruing loans and leases | Commercial real estate — non-owner occupied
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
30-59 days past due | Non-accruing loans and leases | Land development
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
30-59 days past due | Non-accruing loans and leases | Construction
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
30-59 days past due | Non-accruing loans and leases | Multi-family
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
30-59 days past due | Non-accruing loans and leases | 1-4 family
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
30-59 days past due | Non-accruing loans and leases | Commercial and industrial
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	76	4,368
30-59 days past due | Non-accruing loans and leases | Direct financing leases, net
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
30-59 days past due | Non-accruing loans and leases | Home equity and second mortgages
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
30-59 days past due | Non-accruing loans and leases | Other
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
60-89 days past due
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	1,603	4,092
60-89 days past due | Commercial real estate — owner occupied
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
60-89 days past due | Commercial real estate — non-owner occupied
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
60-89 days past due | Land development
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	990
60-89 days past due | Construction
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
60-89 days past due | Multi-family
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
60-89 days past due | 1-4 family
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	333
60-89 days past due | Commercial and industrial
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	1,603	2,769
60-89 days past due | Direct financing leases, net
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
60-89 days past due | Home equity and second mortgages
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
60-89 days past due | Other
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
60-89 days past due | Accruing loans and leases
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	1,320	1,042
60-89 days past due | Accruing loans and leases | Commercial real estate — owner occupied
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
60-89 days past due | Accruing loans and leases | Commercial real estate — non-owner occupied
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
60-89 days past due | Accruing loans and leases | Land development
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	990
60-89 days past due | Accruing loans and leases | Construction
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
60-89 days past due | Accruing loans and leases | Multi-family
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
60-89 days past due | Accruing loans and leases | 1-4 family
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
60-89 days past due | Accruing loans and leases | Commercial and industrial
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	1,320	52
60-89 days past due | Accruing loans and leases | Direct financing leases, net
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
60-89 days past due | Accruing loans and leases | Home equity and second mortgages
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
60-89 days past due | Accruing loans and leases | Other
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
60-89 days past due | Non-accruing loans and leases
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	283	3,050
60-89 days past due | Non-accruing loans and leases | Commercial real estate — owner occupied
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
60-89 days past due | Non-accruing loans and leases | Commercial real estate — non-owner occupied
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
60-89 days past due | Non-accruing loans and leases | Land development
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
60-89 days past due | Non-accruing loans and leases | Construction
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
60-89 days past due | Non-accruing loans and leases | Multi-family
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
60-89 days past due | Non-accruing loans and leases | 1-4 family
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	333
60-89 days past due | Non-accruing loans and leases | Commercial and industrial
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	283	2,717
60-89 days past due | Non-accruing loans and leases | Direct financing leases, net
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
60-89 days past due | Non-accruing loans and leases | Home equity and second mortgages
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
60-89 days past due | Non-accruing loans and leases | Other
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Greater than 90 days past due
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	11,426	3,612
Greater than 90 days past due | Commercial real estate — owner occupied
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	3,550	342
Greater than 90 days past due | Commercial real estate — non-owner occupied
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Greater than 90 days past due | Land development
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Greater than 90 days past due | Construction
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Greater than 90 days past due | Multi-family
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Greater than 90 days past due | 1-4 family
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	333	0
Greater than 90 days past due | Commercial and industrial
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	7,416	3,123
Greater than 90 days past due | Direct financing leases, net
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Greater than 90 days past due | Home equity and second mortgages
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Greater than 90 days past due | Other
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	127	147
Greater than 90 days past due | Accruing loans and leases
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Greater than 90 days past due | Accruing loans and leases | Commercial real estate — owner occupied
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Greater than 90 days past due | Accruing loans and leases | Commercial real estate — non-owner occupied
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Greater than 90 days past due | Accruing loans and leases | Land development
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Greater than 90 days past due | Accruing loans and leases | Construction
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Greater than 90 days past due | Accruing loans and leases | Multi-family
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Greater than 90 days past due | Accruing loans and leases | 1-4 family
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Greater than 90 days past due | Accruing loans and leases | Commercial and industrial
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Greater than 90 days past due | Accruing loans and leases | Direct financing leases, net
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Greater than 90 days past due | Accruing loans and leases | Home equity and second mortgages
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Greater than 90 days past due | Accruing loans and leases | Other
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Greater than 90 days past due | Non-accruing loans and leases
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	11,426	3,612
Greater than 90 days past due | Non-accruing loans and leases | Commercial real estate — owner occupied
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	3,550	342
Greater than 90 days past due | Non-accruing loans and leases | Commercial real estate — non-owner occupied
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Greater than 90 days past due | Non-accruing loans and leases | Land development
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Greater than 90 days past due | Non-accruing loans and leases | Construction
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Greater than 90 days past due | Non-accruing loans and leases | Multi-family
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Greater than 90 days past due | Non-accruing loans and leases | 1-4 family
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	333	0
Greater than 90 days past due | Non-accruing loans and leases | Commercial and industrial
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	7,416	3,123
Greater than 90 days past due | Non-accruing loans and leases | Direct financing leases, net
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Greater than 90 days past due | Non-accruing loans and leases | Home equity and second mortgages
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	0	0
Greater than 90 days past due | Non-accruing loans and leases | Other
Financing Receivable, Recorded Investment, Aging [Abstract]
Total Past Due	$ 127	$ 147

XML

Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses (Non-accrual Loans) (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Financing Receivable, Impaired
Non-accrual loans and leases	$ 24,095	$ 20,613
Foreclosed properties, net	1,389	2,919
Total non-performing assets	25,484	23,532
Performing troubled debt restructurings	49	140
Total impaired assets	$ 25,533	$ 23,672
Total non-accrual loans and leases to gross loans and leases	1.17%	1.20%
Total non-performing assets to total gross loans and leases plus foreclosed properties, net	1.23%	1.37%
Total non-performing assets to total assets	1.03%	1.12%
Allowance for loan and lease losses to gross loans and leases	1.33%	1.14%
Allowance for loan and lease losses to non-accrual loans and leases	113.98%	94.70%
Commercial real estate — owner occupied
Financing Receivable, Impaired
Non-accrual loans and leases	$ 7,503	$ 4,032
Commercial real estate — non-owner occupied
Financing Receivable, Impaired
Non-accrual loans and leases	0	0
Land development
Financing Receivable, Impaired
Non-accrual loans and leases	1,049	1,526
Construction
Financing Receivable, Impaired
Non-accrual loans and leases	0	0
Multi-family
Financing Receivable, Impaired
Non-accrual loans and leases	0	0
1-4 family
Financing Receivable, Impaired
Non-accrual loans and leases	333	333
Total non-accrual commercial real estate
Financing Receivable, Impaired
Non-accrual loans and leases	8,885	5,891
Commercial and industrial
Financing Receivable, Impaired
Non-accrual loans and leases	15,034	14,575
Direct financing leases, net
Financing Receivable, Impaired
Non-accrual loans and leases	49	0
Home equity and second mortgages
Financing Receivable, Impaired
Non-accrual loans and leases	0	0
Other
Financing Receivable, Impaired
Non-accrual loans and leases	127	147
Total non-accrual consumer and other loans
Financing Receivable, Impaired
Non-accrual loans and leases	$ 127	$ 147

XML

Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses (Troubled Debt Restructurings) (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020 USD ($) loans	Jun. 30, 2019 USD ($) loans	Jun. 30, 2020 USD ($) loans	Jun. 30, 2019 USD ($) loans
Troubled debt restructurings
Number of Loans | loans	1		5
Pre-Modification Recorded Investment	$ 4,986		$ 6,306
Post-Modification Recorded Investment	$ 4,986		$ 6,028
Commercial real estate — owner occupied
Troubled debt restructurings
Number of Loans | loans	0		2
Pre-Modification Recorded Investment	$ 0		$ 299
Post-Modification Recorded Investment	$ 0		$ 272
Commercial and industrial
Troubled debt restructurings
Number of Loans | loans	1	9	3	13
Pre-Modification Recorded Investment	$ 4,986	$ 5,281	$ 6,007	$ 7,359
Post-Modification Recorded Investment	$ 4,986	$ 5,281	$ 5,756	$ 7,284

XML

Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses (Impaired Loans and Leases) (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2020	Dec. 31, 2019
Recorded Investment(1)
With no impairment reserve recorded	$ 10,742	$ 7,312
With impairment reserve recorded	13,402	13,441
Total	24,144	20,753
Unpaid Principal Balance
With no impairment reserve recorded	17,656	14,050
With impairment reserve recorded	16,237	16,183
Total	33,893	30,233
Impairment Reserve
Impairment Reserve	5,924	3,365
Average Recorded Investment(2)
With no impairment reserve recorded	20,937	20,212
With impairment reserve recorded	2,910	3,878
Total	23,847	24,090
Foregone Interest Income
With no impairment reserve recorded	698	1,257
With impairment reserve recorded	416	1,436
Foregone interest income	1,114	2,693
Interest Income Recognized
With no impairment reserve recorded	458	793
With impairment reserve recorded	0	0
Total	458	793
Net Foregone Interest Income
With no impairment reserve recorded	240	464
With impairment reserve recorded	416	1,436
Total	656	1,900
Commercial real estate — owner occupied
Recorded Investment(1)
With no impairment reserve recorded	3,856	387
With impairment reserve recorded	3,647	3,645
Total	7,503	4,032
Unpaid Principal Balance
With no impairment reserve recorded	3,856	387
With impairment reserve recorded	5,034	5,004
Total	8,890	5,391
Impairment Reserve
Impairment Reserve	3,052	1,082
Average Recorded Investment(2)
With no impairment reserve recorded	4,577	3,285
With impairment reserve recorded	1,469	1,511
Total	6,046	4,796
Foregone Interest Income
With no impairment reserve recorded	86	64
With impairment reserve recorded	201	414
Foregone interest income	287	478
Interest Income Recognized
With no impairment reserve recorded	72	355
With impairment reserve recorded	0	0
Total	72	355
Net Foregone Interest Income
With no impairment reserve recorded	14	(291)
With impairment reserve recorded	201	414
Total	215	123
Commercial real estate — non-owner occupied
Recorded Investment(1)
With no impairment reserve recorded	0	0
With impairment reserve recorded	0	0
Total	0	0
Unpaid Principal Balance
With no impairment reserve recorded	0	0
With impairment reserve recorded	0	0
Total	0	0
Impairment Reserve
Impairment Reserve	0	0
Average Recorded Investment(2)
With no impairment reserve recorded	53	58
With impairment reserve recorded	0	0
Total	53	58
Foregone Interest Income
With no impairment reserve recorded	0	1
With impairment reserve recorded	0	0
Foregone interest income	0	1
Interest Income Recognized
With no impairment reserve recorded	0	0
With impairment reserve recorded	0	0
Total	0	0
Net Foregone Interest Income
With no impairment reserve recorded	0	1
With impairment reserve recorded	0	0
Total	0	1
Land development
Recorded Investment(1)
With no impairment reserve recorded	1,049	1,526
With impairment reserve recorded	0	0
Total	1,049	1,526
Unpaid Principal Balance
With no impairment reserve recorded	5,346	5,823
With impairment reserve recorded	0	0
Total	5,346	5,823
Impairment Reserve
Impairment Reserve	0	0
Average Recorded Investment(2)
With no impairment reserve recorded	1,442	1,843
With impairment reserve recorded	0	0
Total	1,442	1,843
Foregone Interest Income
With no impairment reserve recorded	19	52
With impairment reserve recorded	0	0
Foregone interest income	19	52
Interest Income Recognized
With no impairment reserve recorded	0	6
With impairment reserve recorded	0	0
Total	0	6
Net Foregone Interest Income
With no impairment reserve recorded	19	46
With impairment reserve recorded	0	0
Total	19	46
Construction
Recorded Investment(1)
With no impairment reserve recorded	0	0
With impairment reserve recorded	0	0
Total	0	0
Unpaid Principal Balance
With no impairment reserve recorded	0	0
With impairment reserve recorded	0	0
Total	0	0
Impairment Reserve
Impairment Reserve	0	0
Average Recorded Investment(2)
With no impairment reserve recorded	0	0
With impairment reserve recorded	0	0
Total	0	0
Foregone Interest Income
With no impairment reserve recorded	0	0
With impairment reserve recorded	0	0
Foregone interest income	0	0
Interest Income Recognized
With no impairment reserve recorded	0	0
With impairment reserve recorded	0	0
Total	0	0
Net Foregone Interest Income
With no impairment reserve recorded	0	0
With impairment reserve recorded	0	0
Total	0	0
Multi-family
Recorded Investment(1)
With no impairment reserve recorded	0	0
With impairment reserve recorded	0	0
Total	0	0
Unpaid Principal Balance
With no impairment reserve recorded	0	0
With impairment reserve recorded	0	0
Total	0	0
Impairment Reserve
Impairment Reserve	0	0
Average Recorded Investment(2)
With no impairment reserve recorded	0	0
With impairment reserve recorded	0	0
Total	0	0
Foregone Interest Income
With no impairment reserve recorded	0	0
With impairment reserve recorded	0	0
Foregone interest income	0	0
Interest Income Recognized
With no impairment reserve recorded	0	0
With impairment reserve recorded	0	0
Total	0	0
Net Foregone Interest Income
With no impairment reserve recorded	0	0
With impairment reserve recorded	0	0
Total	0	0
1-4 family
Recorded Investment(1)
With no impairment reserve recorded	382	473
With impairment reserve recorded	0	0
Total	382	473
Unpaid Principal Balance
With no impairment reserve recorded	387	478
With impairment reserve recorded	0	0
Total	387	478
Impairment Reserve
Impairment Reserve	0	0
Average Recorded Investment(2)
With no impairment reserve recorded	433	356
With impairment reserve recorded	0	0
Total	433	356
Foregone Interest Income
With no impairment reserve recorded	21	19
With impairment reserve recorded	0	0
Foregone interest income	21	19
Interest Income Recognized
With no impairment reserve recorded	70	46
With impairment reserve recorded	0	0
Total	70	46
Net Foregone Interest Income
With no impairment reserve recorded	(49)	(27)
With impairment reserve recorded	0	0
Total	(49)	(27)
Commercial and industrial
Recorded Investment(1)
With no impairment reserve recorded	5,328	4,779
With impairment reserve recorded	9,706	9,796
Total	15,034	14,575
Unpaid Principal Balance
With no impairment reserve recorded	7,273	6,549
With impairment reserve recorded	11,154	11,179
Total	18,427	17,728
Impairment Reserve
Impairment Reserve	2,847	2,283
Average Recorded Investment(2)
With no impairment reserve recorded	14,291	14,479
With impairment reserve recorded	1,437	2,367
Total	15,728	16,846
Foregone Interest Income
With no impairment reserve recorded	550	1,073
With impairment reserve recorded	213	1,022
Foregone interest income	763	2,095
Interest Income Recognized
With no impairment reserve recorded	316	379
With impairment reserve recorded	0	0
Total	316	379
Net Foregone Interest Income
With no impairment reserve recorded	234	694
With impairment reserve recorded	213	1,022
Total	447	1,716
Direct financing leases, net
Recorded Investment(1)
With no impairment reserve recorded	0	0
With impairment reserve recorded	49	0
Total	49	0
Unpaid Principal Balance
With no impairment reserve recorded	0	0
With impairment reserve recorded	49	0
Total	49	0
Impairment Reserve
Impairment Reserve	25	0
Average Recorded Investment(2)
With no impairment reserve recorded	4	0
With impairment reserve recorded	4	0
Total	8	0
Foregone Interest Income
With no impairment reserve recorded	0	0
With impairment reserve recorded	2	0
Foregone interest income	2	0
Interest Income Recognized
With no impairment reserve recorded	0	0
With impairment reserve recorded	0	0
Total	0	0
Net Foregone Interest Income
With no impairment reserve recorded	0	0
With impairment reserve recorded	2	0
Total	2	0
Home equity and second mortgages
Recorded Investment(1)
With no impairment reserve recorded	0	0
With impairment reserve recorded	0	0
Total	0	0
Unpaid Principal Balance
With no impairment reserve recorded	0	0
With impairment reserve recorded	0	0
Total	0	0
Impairment Reserve
Impairment Reserve	0	0
Average Recorded Investment(2)
With no impairment reserve recorded	0	0
With impairment reserve recorded	0	0
Total	0	0
Foregone Interest Income
With no impairment reserve recorded	0	0
With impairment reserve recorded	0	0
Foregone interest income	0	0
Interest Income Recognized
With no impairment reserve recorded	0	7
With impairment reserve recorded	0	0
Total	0	7
Net Foregone Interest Income
With no impairment reserve recorded	0	(7)
With impairment reserve recorded	0	0
Total	0	(7)
Other
Recorded Investment(1)
With no impairment reserve recorded	127	147
With impairment reserve recorded	0	0
Total	127	147
Unpaid Principal Balance
With no impairment reserve recorded	794	813
With impairment reserve recorded	0	0
Total	794	813
Impairment Reserve
Impairment Reserve	0	0
Average Recorded Investment(2)
With no impairment reserve recorded	137	191
With impairment reserve recorded	0	0
Total	137	191
Foregone Interest Income
With no impairment reserve recorded	22	48
With impairment reserve recorded	0	0
Foregone interest income	22	48
Interest Income Recognized
With no impairment reserve recorded	0	0
With impairment reserve recorded	0	0
Total	0	0
Net Foregone Interest Income
With no impairment reserve recorded	22	48
With impairment reserve recorded	0	0
Total	$ 22	$ 48

XML

Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses (Summary of Activity in Allowance for Loan and Lease Losses) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Allowance for credit losses roll-forward
Allowance for loan and lease losses - begin	$ 22,748	$ 20,449	$ 19,520	$ 20,425
Charge-offs	(817)	(15)	(948)	(63)
Recoveries	64	169	241	193
Net (charge-offs) recoveries	(753)	154	(707)	130
Provision for credit loss	5,469	(784)	8,651	(736)
Allowance for loan and lease losses - end	27,464	19,819	27,464	19,819
Total commercial real estate
Allowance for credit losses roll-forward
Allowance for loan and lease losses - begin	12,597	11,205	10,852	11,662
Charge-offs	(27)	0	(27)	0
Recoveries	2	72	3	73
Net (charge-offs) recoveries	(25)	72	(24)	73
Provision for credit loss	3,866	(8)	5,610	(466)
Allowance for loan and lease losses - end	16,438	11,269	16,438	11,269
Total commercial and Industrial
Allowance for credit losses roll-forward
Allowance for loan and lease losses - begin	9,322	8,485	8,078	8,079
Charge-offs	(784)	(13)	(909)	(61)
Recoveries	62	72	238	92
Net (charge-offs) recoveries	(722)	59	(671)	31
Provision for credit loss	1,579	(652)	2,772	(218)
Allowance for loan and lease losses - end	10,179	7,892	10,179	7,892
Total consumer and other
Allowance for credit losses roll-forward
Allowance for loan and lease losses - begin	829	759	590	684
Charge-offs	(6)	(2)	(12)	(2)
Recoveries	0	25	0	28
Net (charge-offs) recoveries	(6)	23	(12)	26
Provision for credit loss	24	(124)	269	(52)
Allowance for loan and lease losses - end	$ 847	$ 658	$ 847	$ 658

XML

Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses (Allowance for Loan and Lease Losses by Type of Methodology) (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Mar. 31, 2020	Dec. 31, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018
Financing Receivable, Allowance for Credit Losses
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment	$ 21,540		$ 16,155
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment	5,924		3,365
Allowance for loan and lease losses	27,464	$ 22,748	19,520	$ 19,819	$ 20,449	$ 20,425
Financing Receivable, Collectively Evaluated for Impairment	2,041,261		1,694,623
Financing Receivable, Individually Evaluated for Impairment	24,144		20,753
Loans and Leases Receivable, Gross	2,065,405		1,715,376
Total commercial real estate
Financing Receivable, Allowance for Credit Losses
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment	13,386		9,770
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment	3,052		1,082
Allowance for loan and lease losses	16,438	12,597	10,852	11,269	11,205	11,662
Financing Receivable, Collectively Evaluated for Impairment	1,213,264		1,148,070
Financing Receivable, Individually Evaluated for Impairment	8,934		6,031
Loans and Leases Receivable, Gross	1,222,198		1,154,101
Total commercial and Industrial
Financing Receivable, Allowance for Credit Losses
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment	7,307		5,795
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment	2,872		2,283
Allowance for loan and lease losses	10,179	9,322	8,078	7,892	8,485	8,079
Financing Receivable, Collectively Evaluated for Impairment	791,681		517,030
Financing Receivable, Individually Evaluated for Impairment	15,083		14,575
Loans and Leases Receivable, Gross	806,764		531,605
Total consumer and other
Financing Receivable, Allowance for Credit Losses
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment	847		590
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment	0		0
Allowance for loan and lease losses	847	$ 829	590	$ 658	$ 759	$ 684
Financing Receivable, Collectively Evaluated for Impairment	36,316		29,523
Financing Receivable, Individually Evaluated for Impairment	127		147
Loans and Leases Receivable, Gross	$ 36,443		$ 29,670

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Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses (Narrative Disclosures) (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2020 USD ($) loans	Jun. 30, 2019 USD ($) loans	Jun. 30, 2020 USD ($) loans	Jun. 30, 2019 USD ($) loans	Dec. 31, 2019 USD ($)
Financing Receivable, Recorded Investment
SBA loans in the participation sold portfolio, considered impaired	$ 9,700,000		$ 9,700,000		$ 12,100,000
Guaranteed portion of SBA loans sold to third parties	6,500,000	$ 3,300,000	9,200,000	$ 5,600,000
Total amount of outstanding SBA loans sold	69,900,000		69,900,000		73,800,000
Loans and leases transferred to third parties total principal amount	10,300,000	$ 17,200,000	22,200,000	$ 34,400,000
Gain (Loss) Recognized on Participation Interest in Originated Loans			0
Total amount of outstanding loans transferred to third parties as loan participations	149,400,000		149,400,000		142,800,000
Total amount of loan participations remaining on the Corporations balance sheet	266,100,000		266,100,000		244,600,000
Loans in the participation sold portfolio, considered impaired	0		0		0
Loan participations purchased on the Corporation's balance sheet	452,000		452,000		492,000
Non-accrual troubled debt restructurings	16,300,000		16,300,000		15,600,000
Specific Reserves on Troubled Debt Restructurings	4,800,000		4,800,000		2,700,000
Unfunded commitments, troubled debt restructurings	0		0
Loans and leases receivable, difference between recorded investment and unpaid principal balance	9,700,000		9,700,000		9,500,000
Performing troubled debt restructurings	$ 49,000		$ 49,000		$ 140,000
Commercial real estate — owner occupied
Financing Receivable, Recorded Investment
Financing Receivable, Troubled Debt Restructuring, Subsequent Default, Number of Contracts | loans	4		4
Financing Receivable, Troubled Debt Restructuring, Subsequent Default	$ 3,800,000		$ 3,800,000
Commercial and industrial
Financing Receivable, Recorded Investment
Financing Receivable, Troubled Debt Restructuring, Subsequent Default, Number of Contracts | loans	2	2	2	2
Financing Receivable, Troubled Debt Restructuring, Subsequent Default	$ 2,700,000	$ 2,800,000	$ 2,700,000	$ 2,800,000

XML

Leases Total Lease Cost (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Leases [Abstract]
Operating lease cost	$ 372	$ 391	$ 745	$ 781
Short-term lease cost	126	101	253	238
Variable lease cost	48	74	122	142
Sublease income	28	0	56	0
Total lease cost, net	$ 518	$ 566	$ 1,064	$ 1,161

XML

Leases Quantitative Information (Details)	Jun. 30, 2020	Dec. 31, 2019
Leases [Abstract]
Weighted-average remaining lease term (in years)	5 years 10 months 13 days	6 years 6 months 21 days
Weighted-average discount rate	3.10%	3.09%

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Leases Maturity of Operating Lease Liabilities (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Leases [Abstract]
Due 2020	$ 767
Due 2021	1,382
Due 2022	1,373
Due 2023	1,015
Due 2024	756
Due thereafter	2,307
Total undiscounted cash flows	7,600
Discount on cash flows	(723)
Total lease liability	$ 6,877	$ 7,541

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Other Assets Accrued Interest Receivable and Other Assets (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Accrued interest receivable	$ 7,207	$ 5,760
Net deferred tax asset	5,436	5,353
Investment in historic development entities	2,345	2,216
Investment in a community development entity	5,316	5,571
Investment in limited partnerships	4,973	4,476
Investment in Trust II	315	315
Fair value of interest rate swaps	58,808	18,346
Prepaid expenses	2,227	2,285
Other assets	8,464	4,184
Total accrued interest receivable and other assets	$ 95,091	$ 48,506

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Deposits (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2020	Dec. 31, 2019
Deposits
Deposits	$ 1,710,375	$ 1,530,379
Average balance, deposits	$ 1,587,380	$ 1,496,430
Deposits, weighted average interest rate during the period	0.76%	1.53%
Non-interest-bearing transaction accounts
Deposits
Deposits	$ 433,760	$ 293,573
Average balance, deposits	$ 365,771	$ 275,495
Deposits, weighted average interest rate during the period	0.00%	0.00%
Interest-bearing transaction accounts
Deposits
Deposits	$ 413,214	$ 273,909
Average balance, deposits	$ 320,188	$ 222,244
Deposits, weighted average interest rate during the period	0.59%	1.53%
Money market accounts
Deposits
Deposits	$ 656,741	$ 674,409
Average balance, deposits	$ 653,598	$ 617,341
Deposits, weighted average interest rate during the period	0.68%	1.71%
Certificates of deposit
Deposits
Deposits	$ 116,901	$ 137,012
Average balance, deposits	$ 128,791	$ 156,048
Deposits, weighted average interest rate during the period	2.14%	2.47%
Wholesale deposits
Deposits
Deposits	$ 89,759	$ 151,476
Average balance, deposits	$ 119,032	$ 225,302
Deposits, weighted average interest rate during the period	2.50%	2.27%

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FHLB Advances, Other Borrowings and Junior Subordinated Notes Payable (Composition of Borrowed Funds) (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2020	Dec. 31, 2019
Composition of Borrowed Funds
Borrowed funds	$ 475,061	$ 329,429
Borrowed funds, average balance	$ 412,597	$ 321,740
Borrowed funds, interest rate during period	2.01%	2.87%
Long-term borrowings
Composition of Borrowed Funds
Borrowed funds	$ 272,561	$ 210,929
Short-term borrowings
Composition of Borrowed Funds
Borrowed funds	202,500	118,500
Federal funds purchased
Composition of Borrowed Funds
Borrowed funds	0	0
Borrowed funds, average balance	$ 143	$ 59
Borrowed funds, interest rate during period	0.69%	2.45%
Federal Reserve PPPLF
Composition of Borrowed Funds
Borrowed funds	$ 29,605	$ 0
Borrowed funds, average balance	$ 10,410	$ 0
Borrowed funds, interest rate during period	0.35%	0.00%
FHLB advances
Composition of Borrowed Funds
Borrowed funds	$ 411,000	$ 295,000
Borrowed funds, average balance	$ 367,604	$ 286,464
Borrowed funds, interest rate during period	1.55%	2.17%
Other borrowings
Composition of Borrowed Funds
Borrowed funds	$ 675	$ 675
Borrowed funds, average balance	$ 675	$ 675
Borrowed funds, interest rate during period	8.09%	8.11%
Subordinated notes payable(1)
Composition of Borrowed Funds
Borrowed funds	$ 23,727	$ 23,707
Borrowed funds, average balance	$ 23,715	$ 24,502
Borrowed funds, interest rate during period	5.95%	7.45%
Junior subordinated notes
Composition of Borrowed Funds
Borrowed funds	$ 10,054	$ 10,047
Borrowed funds, average balance	$ 10,050	$ 10,040
Borrowed funds, interest rate during period	11.04%	11.08%

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FHLB Advances, Other Borrowings and Junior Subordinated Notes Payable Narrative Disclosures Extinguishment of Debt (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Extinguishment of Debt
Borrowed funds, interest rate during period			2.01%		2.87%
Loss on early extinguishment of debt	$ (744)	$ 0	$ (744)	$ 0
FHLB advances
Extinguishment of Debt
Debt extinguishment	$ 59,500
Borrowed funds, interest rate during period	2.34%
Loss on early extinguishment of debt	$ 744

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FHLB Advances, Other Borrowings and Junior Subordinated Notes Payable (Narrative Disclosures) (Details) - USD ($)	3 Months Ended	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2020
Debt Disclosure [Abstract]
Line of credit commitment fee	$ 6,000	$ 7,000

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Commitments and Contingencies SBA Recourse Reserve Rollforward (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Commitments and Contingencies Disclosure [Abstract]
Beginning balance	$ 1,086	$ 3,276	$ 1,345	$ 2,956
SBA recourse provision	(30)	113	(5)	594
SBA Loan Charge Offs, Net	(49)	(1,321)	(333)	(1,482)
Ending balance	$ 1,007	$ 2,068	$ 1,007	$ 2,068

XML

Commitments and Contingencies Narrative (Details) $ in Millions	Jun. 30, 2020 USD ($)
Commitments and Contingencies Disclosure [Abstract]
SBA Loans, Probability of Future Losses	$ 1.0

XML

Fair Value Disclosures (Measured on a Recurring Basis) (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Interest rate swaps
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Derivative Liability		$ 20,885
Fair value on a recurring basis | Interest rate swaps
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Derivative Liability	$ 65,390	20,885
Fair value on a recurring basis | Interest rate swaps | Fair Value Measurements - Level 1 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Derivative Liability	0	0
Fair value on a recurring basis | Interest rate swaps | Fair Value Measurements - Level 2 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Derivative Liability	65,390	20,885
Fair value on a recurring basis | Interest rate swaps | Fair Value Measurements - Level 3 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Derivative Liability	0	0
Fair value on a recurring basis | Interest rate swaps
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	58,808	18,346
Fair value on a recurring basis | Interest rate swaps | Fair Value Measurements - Level 1 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	0	0
Fair value on a recurring basis | Interest rate swaps | Fair Value Measurements - Level 2 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	58,808	18,346
Fair value on a recurring basis | Interest rate swaps | Fair Value Measurements - Level 3 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	0	0
Fair value on a recurring basis | U.S. government agency securities - government-sponsored enterprises
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	21,970	23,758
Fair value on a recurring basis | U.S. government agency securities - government-sponsored enterprises | Fair Value Measurements - Level 1 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	0	0
Fair value on a recurring basis | U.S. government agency securities - government-sponsored enterprises | Fair Value Measurements - Level 2 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	21,970	23,758
Fair value on a recurring basis | U.S. government agency securities - government-sponsored enterprises | Fair Value Measurements - Level 3 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	0	0
Fair value on a recurring basis | Municipal securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	11,471	160
Fair value on a recurring basis | Municipal securities | Fair Value Measurements - Level 1 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	0	0
Fair value on a recurring basis | Municipal securities | Fair Value Measurements - Level 2 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	11,471	160
Fair value on a recurring basis | Municipal securities | Fair Value Measurements - Level 3 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	0	0
Fair value on a recurring basis | Other securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	2,297	2,235
Fair value on a recurring basis | Other securities | Fair Value Measurements - Level 1 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	0	0
Fair value on a recurring basis | Other securities | Fair Value Measurements - Level 2 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	2,297	2,235
Fair value on a recurring basis | Other securities | Fair Value Measurements - Level 3 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	0	0
GNMA | Fair value on a recurring basis | Residential mortgage-backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	12,883	16,348
GNMA | Fair value on a recurring basis | Residential mortgage-backed securities | Fair Value Measurements - Level 1 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	0	0
GNMA | Fair value on a recurring basis | Residential mortgage-backed securities | Fair Value Measurements - Level 2 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	12,883	16,348
GNMA | Fair value on a recurring basis | Residential mortgage-backed securities | Fair Value Measurements - Level 3 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	0	0
GNMA | Fair value on a recurring basis | Commercial mortgage-backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	6,366	6,663
GNMA | Fair value on a recurring basis | Commercial mortgage-backed securities | Fair Value Measurements - Level 1 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	0	0
GNMA | Fair value on a recurring basis | Commercial mortgage-backed securities | Fair Value Measurements - Level 2 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	6,366	6,663
GNMA | Fair value on a recurring basis | Commercial mortgage-backed securities | Fair Value Measurements - Level 3 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	0	0
Government Sponsored Enterprises | Fair value on a recurring basis | Residential mortgage-backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	104,089	112,002
Government Sponsored Enterprises | Fair value on a recurring basis | Residential mortgage-backed securities | Fair Value Measurements - Level 1 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	0	0
Government Sponsored Enterprises | Fair value on a recurring basis | Residential mortgage-backed securities | Fair Value Measurements - Level 2 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	104,089	112,002
Government Sponsored Enterprises | Fair value on a recurring basis | Residential mortgage-backed securities | Fair Value Measurements - Level 3 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	0	0
Government Sponsored Enterprises | Fair value on a recurring basis | Commercial mortgage-backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	12,604	11,967
Government Sponsored Enterprises | Fair value on a recurring basis | Commercial mortgage-backed securities | Fair Value Measurements - Level 1 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	0	0
Government Sponsored Enterprises | Fair value on a recurring basis | Commercial mortgage-backed securities | Fair Value Measurements - Level 2 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	12,604	11,967
Government Sponsored Enterprises | Fair value on a recurring basis | Commercial mortgage-backed securities | Fair Value Measurements - Level 3 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	$ 0	$ 0

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Fair Value Disclosures (Measured on a Non-Recurring Basis) (Details) - Fair value on a non-recurring basis - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Impaired loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	$ 13,203	$ 15,699
Impaired loans | Fair Value Measurements - Level 1 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	0	0
Impaired loans | Fair Value Measurements - Level 2 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	0	0
Impaired loans | Fair Value Measurements - Level 3 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	13,203	15,699
Foreclosed properties
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	1,389	2,919
Foreclosed properties | Fair Value Measurements - Level 1 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	0	0
Foreclosed properties | Fair Value Measurements - Level 2 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	0	0
Foreclosed properties | Fair Value Measurements - Level 3 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	1,389	2,919
Loan servicing rights
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	1,216	1,195
Loan servicing rights | Fair Value Measurements - Level 1 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	0	0
Loan servicing rights | Fair Value Measurements - Level 2 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	0	0
Loan servicing rights | Fair Value Measurements - Level 3 Inputs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Disclosure	$ 1,216	$ 1,195

XML

Fair Value Disclosures (Fair Value by Balance Sheet Groupings) (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019	Jun. 30, 2019	Dec. 31, 2018
Financial assets:
Cash and cash equivalents, carrying amount	$ 42,391	$ 67,102	$ 45,875	$ 86,546
Available-for-sale securities, carrying amount	171,680	173,133
Securities held-to-maturity, carrying amount	29,826	32,700
Loans held for sale, carrying amount	13,672	5,205
Loans and leases receivable, net amount	2,029,399	1,695,115
Federal Home Loan Bank stock, carrying amount	13,470	7,953
Accrued interest receivable, carrying amount	7,207	5,760
Cash and cash equivalents, fair value	42,391	67,102
Available-for-sale securities, fair value	171,680	173,133
Held-to-maturity Securities, fair value	30,887	33,188
Loans Held-for-sale, fair value	14,902	5,673
Loans and lease receivables, net, fair value	2,027,279	1,706,201
Accrued interest receivable, fair value	7,207	5,760
Financial liabilities:
Deposits, carrying amount	1,710,375	1,530,379
Federal Home Loan Bank and other borrowings, carrying amount	465,007	319,382
Junior subordinated notes, carrying amount	10,054	10,047
Accrued interest payable, carrying amount	2,012	2,882
Standby letters of credit, carrying amount	53	63
Deposits, fair value	1,713,277	1,532,517
Federal Home Loan Bank and other borrowings fair value	475,173	319,507
Junior subordinated notes, fair value	9,978	9,970
Accrued interest payable, fair value	2,012	2,282
Standby letters of credit, fair value	53	63
Interest rate swaps
Financial liabilities:
Interest rate swaps - liabilities, carrying amount		20,885
Interest rate swaps - liabilities, fair value	65,390	20,885
Interest rate swaps
Financial assets:
Interest rate swaps - assets, carrying amount	58,808	18,346
Interest rate swaps - assets, fair value	58,808	18,346
Fair Value Measurements - Level 1 Inputs
Financial assets:
Cash and cash equivalents, fair value	42,391	61,202
Available-for-sale securities, fair value	0	0
Held-to-maturity Securities, fair value	0	0
Loans Held-for-sale, fair value	0	0
Loans and lease receivables, net, fair value	0	0
Accrued interest receivable, fair value	7,207	5,760
Financial liabilities:
Deposits, fair value	1,503,715	1,241,891
Federal Home Loan Bank and other borrowings fair value	0	0
Junior subordinated notes, fair value	0	0
Accrued interest payable, fair value	2,012	2,282
Standby letters of credit, fair value	0	0
Fair Value Measurements - Level 1 Inputs | Interest rate swaps
Financial liabilities:
Interest rate swaps - liabilities, fair value	0	0
Fair Value Measurements - Level 1 Inputs | Interest rate swaps
Financial assets:
Interest rate swaps - assets, fair value	0	0
Fair Value Measurements - Level 2 Inputs
Financial assets:
Cash and cash equivalents, fair value	0	5,900
Available-for-sale securities, fair value	171,680	173,133
Held-to-maturity Securities, fair value	30,887	33,188
Loans Held-for-sale, fair value	14,902	5,673
Loans and lease receivables, net, fair value	0	0
Accrued interest receivable, fair value	0	0
Financial liabilities:
Deposits, fair value	209,562	290,626
Federal Home Loan Bank and other borrowings fair value	475,173	319,507
Junior subordinated notes, fair value	0	0
Accrued interest payable, fair value	0	0
Standby letters of credit, fair value	0	0
Fair Value Measurements - Level 2 Inputs | Interest rate swaps
Financial liabilities:
Interest rate swaps - liabilities, fair value	65,390	20,885
Fair Value Measurements - Level 2 Inputs | Interest rate swaps
Financial assets:
Interest rate swaps - assets, fair value	58,808	18,346
Fair Value Measurements - Level 3 Inputs
Financial assets:
Cash and cash equivalents, fair value	0	0
Available-for-sale securities, fair value	0	0
Held-to-maturity Securities, fair value	0	0
Loans Held-for-sale, fair value	0	0
Loans and lease receivables, net, fair value	2,027,279	1,706,201
Accrued interest receivable, fair value	0	0
Financial liabilities:
Deposits, fair value	0	0
Federal Home Loan Bank and other borrowings fair value	0	0
Junior subordinated notes, fair value	9,978	9,970
Accrued interest payable, fair value	0	0
Standby letters of credit, fair value	53	63
Fair Value Measurements - Level 3 Inputs | Interest rate swaps
Financial liabilities:
Interest rate swaps - liabilities, fair value	0	0
Fair Value Measurements - Level 3 Inputs | Interest rate swaps
Financial assets:
Interest rate swaps - assets, fair value	$ 0	$ 0

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Fair Value Disclosures (Narrative Disclosures) (Details) - USD ($)	3 Months Ended	6 Months Ended	12 Months Ended
	Jun. 30, 2020	Jun. 30, 2020	Dec. 31, 2019
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Transfers, Net [Abstract]
Fair value, assets, level 1 to level 2 transfers	$ 0	$ 0	$ 0
Fair value, assets, level 2 to Level 1 transfers	0	0	0
Fair value, assets, transfers into level 3	0	0	0
Fair value, assets, transfers out of level 3	0	0	0
Fair value, liabilities, transfers out of level 3	0	0	0
Fair value, liabilities, level 1 to level 2 transfers	0	0	0
Fair value, liabilities, level 2 to level 1 transfers	0	0	0
Fair value, liabilities, transfers into level 3	$ 0	$ 0	0
Minimum
Fair Value Measurement Inputs and Valuation Techniques
Quantification of unobservable inputs for level 3 values for impaired loans	5.00%	5.00%
Maximum
Fair Value Measurement Inputs and Valuation Techniques
Quantification of unobservable inputs for level 3 values for impaired loans	93.00%	93.00%
Weighted Average
Fair Value Measurement Inputs and Valuation Techniques
Quantification of unobservable inputs for level 3 values for impaired loans	21.00%	21.00%
Fair value on a non-recurring basis | Impaired loans
Fair Value Measurement Inputs and Valuation Techniques
Assets, Fair Value Disclosure	$ 13,203,000	$ 13,203,000	$ 15,699,000

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Derivative Financial Instruments (Location and Fair Value of Derivative Instruments) (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2020	Dec. 31, 2019
Derivatives not designated as hedging instruments, fair value
Fair value of asset derivatives	$ 58,808	$ 18,346
Fair value of liability derivatives	58,808	18,346
Effective portion of interest rate cash flow hedge, fair value included in accumulated other comprehensive income	6,582	2,539
Interest Rate Cash Flow Hedge Liability at Fair Value	$ 6,582	$ 2,539
Accrued interest receivable and other assets
Derivatives not designated as hedging instruments, fair value
Description of location of interest rate derivative instruments not designated as hedging instruments on balance sheet	Accrued interest receivable and other assets	Accrued interest receivable and other assets
Accrued interest payable and other liabilities
Derivatives not designated as hedging instruments, fair value
Description of location of interest rate derivative instruments not designated as hedging instruments on balance sheet	Accrued interest payable and other liabilities	Accrued interest payable and other liabilities
Description of location of interest rate derivatives designated as hedging instruments on the balance sheet	Accrued interest payable and other liabilities	Accrued interest payable and other liabilities
Accumulated other comprehensive income
Derivatives not designated as hedging instruments, fair value
Description of location of interest rate derivatives designated as hedging instruments on the balance sheet	Accumulated other comprehensive income	Accumulated other comprehensive income

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Derivative Financial Instruments (Narrative Disclosures) (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Derivatives
Interest Rate Swaps, Default	$ 0		$ 0
Interest rate swap contracts not designated as hedging instruments - liabilities, gross	58,808,000		58,808,000		$ 18,346,000
Fair value of interest rate swaps	58,808,000		58,808,000		$ 18,346,000
Derivative asset, fair value, amount offset against collateral	0		0
Pretax unrealized gain on interest rates swaps designated as cash flow hedges	(418,000)	$ (1,514,000)	(4,043,000)	$ (2,464,000)
Gain recognized in income on ineffective portion of hedges				$ 0
To commercial borrowers, corporation receives fixed rates and pays floating rates
Derivatives
Fair value of interest rate swaps	58,800,000		58,800,000
To dealer countparties, corporation pays fixed rates and receives floating rates
Derivatives
Interest rate swap contracts not designated as hedging instruments - liabilities, gross	58,800,000		58,800,000
Fair value of interest rate swaps	0		0
Interest rate derivative instruments not designated as hedging instruments at fair value, net	58,800,000		58,800,000
Not Designated as Hedging Instrument | To commercial borrowers, corporation receives fixed rates and pays floating rates
Derivatives
Derivative, Notional Amount	467,100,000		467,100,000
Not Designated as Hedging Instrument | To dealer countparties, corporation pays fixed rates and receives floating rates
Derivatives
Derivative, Notional Amount	467,100,000		467,100,000
Designated as Hedging Instrument | Interest rate swaps
Derivatives
Derivative, Notional Amount	$ 114,000,000.0		$ 114,000,000.0

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Regulatory Capital (Regulatory Capital Ratios) (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Compliance with Regulatory Capital Requirements under Banking Regulations
Total capital	$ 247,276	$ 239,029
Total capital to risk-weighted assets	11.97%	12.01%
Total capital, Minimum Required for Capital Adequacy Purposes	$ 165,275	$ 159,185
Total capital to risk-weighted assets, Minimum Required for Capital Adequacy Purposes	8.00%	8.00%
Capital Required for Capital Adequacy Plus Capital Conservation Buffer	$ 216,924	$ 208,930
Capital Required for Capital Adequacy Plus Conservation Buffer to Risk Weighted Assets	10.50%	10.50%
Tier 1 capital	$ 197,692	$ 194,456
Tier 1 capital to risk-weighted assets	9.57%	9.77%
Tier 1 capital, Minimum Required for Capital Adequacy Purposes	$ 123,956	$ 119,388
Tier 1 capital to risk-weighted assets, Minimum Required for Capital Adequacy Purposes	6.00%	6.00%
Tier One Risk Based Capital Required for Capital Adequacy Plus Capital Conservation Buffer	$ 175,605	$ 169,134
Tier One Risk Based Capital Required for Capital Adequacy Plus Conservation Buffer to Risk Weighted Assets	8.50%	8.50%
Common equity tier 1 capital	$ 187,638	$ 184,409
Common equity tier 1 capital to risk-weighted assets	9.08%	9.27%
Common equity tier 1 capital, Minimum Required for Capital Adequacy Purposes	$ 92,967	$ 89,541
Common equity tier 1 capital to risk-weighted assets, Minimum Required for Capital Adequacy Purposes	4.50%	4.50%
Common Equity Tier One Capital Required for Capital Adequacy Plus Capital Conservation Buffer	$ 144,616	$ 139,286
Common Equity Tier One Capital Required for Capital Adequacy Plus Conservation Buffer to Risk Weighted Assets	7.00%	7.00%
Tier 1 leverage capital	$ 197,692	$ 194,456
Tier 1 leverage capital to average assets	8.29%	9.27%
Tier 1 leverage capital, Minimum Required for Capital Adequacy Purposes	$ 95,431	$ 83,950
Tier 1 leverage capital to average assets, Minimum Required for Capital Adequacy Purposes	4.00%	4.00%
Tier One Leverage Capital Required for Capital Adequacy Plus Capital Conservation Buffer	$ 95,431	$ 83,950
Tier One Leverage Capital Required for Capital Adequacy Plus Conservation Buffer to Risk Weighted Assets	4.00%	4.00%
First Business Bank
Compliance with Regulatory Capital Requirements under Banking Regulations
Total capital	$ 238,138	$ 233,181
Total capital to risk-weighted assets	11.60%	11.79%
Total capital, Minimum Required for Capital Adequacy Purposes	$ 164,225	$ 158,177
Total capital to risk-weighted assets, Minimum Required for Capital Adequacy Purposes	8.00%	8.00%
Capital Required for Capital Adequacy Plus Capital Conservation Buffer	$ 215,545	$ 207,607
Capital Required for Capital Adequacy Plus Conservation Buffer to Risk Weighted Assets	10.50%	10.50%
Total capital, Minimum Required to be Well Capitalized Under Prompt Corrective Action Requirements	$ 205,281	$ 197,721
Total capital to risk-weighted assets, Minimum Required to be Well Capitalized Under Prompt Corrective Action Requirements	10.00%	10.00%
Tier 1 capital	$ 212,443	$ 212,315
Tier 1 capital to risk-weighted assets	10.35%	10.74%
Tier 1 capital, Minimum Required for Capital Adequacy Purposes	$ 123,169	$ 118,633
Tier 1 capital to risk-weighted assets, Minimum Required for Capital Adequacy Purposes	6.00%	6.00%
Tier One Risk Based Capital Required for Capital Adequacy Plus Capital Conservation Buffer	$ 174,489	$ 168,063
Tier One Risk Based Capital Required for Capital Adequacy Plus Conservation Buffer to Risk Weighted Assets	8.50%	8.50%
Tier 1 capital, Minimum Required to be Well Capitalized Under Prompt Corrective Action Requirements	$ 164,225	$ 158,177
Tier 1 capital to risk weighted assets, Minimum Required to be Well Capitalized Under Prompt Corrective Action Requirements	8.00%	8.00%
Common equity tier 1 capital	$ 212,443	$ 212,315
Common equity tier 1 capital to risk-weighted assets	10.35%	10.74%
Common equity tier 1 capital, Minimum Required for Capital Adequacy Purposes	$ 92,376	$ 88,974
Common equity tier 1 capital to risk-weighted assets, Minimum Required for Capital Adequacy Purposes	4.50%	4.50%
Common Equity Tier One Capital Required for Capital Adequacy Plus Capital Conservation Buffer	$ 143,697	$ 138,405
Common Equity Tier One Capital Required for Capital Adequacy Plus Conservation Buffer to Risk Weighted Assets	7.00%	7.00%
Common equity tier 1 capital, Minimum Required to Be Well Capitalized Under Prompt Corrective Action Requirements	$ 133,433	$ 128,519
Common equity tier 1 capital to risk-weighted assets, Minimum Required to Be Well Capitalized Under Prompt Corrective Action Requirements	6.50%	6.50%
Tier 1 leverage capital	$ 212,443	$ 212,315
Tier 1 leverage capital to average assets	8.96%	10.18%
Tier 1 leverage capital, Minimum Required for Capital Adequacy Purposes	$ 94,856	$ 83,414
Tier 1 leverage capital to average assets, Minimum Required for Capital Adequacy Purposes	4.00%	4.00%
Tier One Leverage Capital Required for Capital Adequacy Plus Capital Conservation Buffer	$ 94,856	$ 83,414
Tier One Leverage Capital Required for Capital Adequacy Plus Conservation Buffer to Risk Weighted Assets	4.00%	4.00%
Tier 1 leverage capital, Minimum Required to be Well Capitalized Under Prompt Corrective Action Requirements	$ 118,570	$ 104,268
Tier 1 leverage capital to average assets, Minimum Required to be Well Capitalized Under Prompt Corrective Action Requirements	5.00%	5.00%

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Regulatory Capital Narrative Disclosures (Details)	6 Months Ended
	Jun. 30, 2020
Broker-Dealer, Net Capital Requirement, SEC Regulation [Abstract]
Description of Material Affects of Noncompliance	Failure to meet minimum capital requirements can result in certain mandatory, and possibly additional discretionary actions on the part of regulators, that if undertaken, could have a direct material effect on the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory practices.