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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 September 30, 2021
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 October 22, 2021 was 8,390,296 shares.


Table of Contents
FIRST BUSINESS FINANCIAL SERVICES, INC.
INDEX — FORM 10-Q


1
1
1
2
3
4
6
8
42
67
67
68
68
68
68
68
68
68
68
69



Table of Contents
PART I. Financial Information
Item 1. Financial Statements
First Business Financial Services, Inc.
Consolidated Balance Sheets
September 30,
2021
December 31,
2020
(Unaudited)
  (In Thousands, Except Share Data)
Assets    
Cash and due from banks $ 20,197  $ 29,538 
Short-term investments 90,427  27,371 
Cash and cash equivalents 110,624  56,909 
Securities available-for-sale, at fair value 194,056  183,925 
Securities held-to-maturity, at amortized cost
21,196  26,374 
Loans held for sale
5,603  8,695 
Loans and leases receivable, net of allowance for loan and lease losses of $24,676 and $28,521, respectively
2,098,630  2,117,449 
Premises and equipment, net 1,700  1,998 
Foreclosed properties 172  34 
Right-of-use assets, net 5,263  5,814 
Bank-owned life insurance 53,244  52,188 
Federal Home Loan Bank stock, at cost 12,351  13,578 
Goodwill and other intangible assets 12,229  12,018 
Derivatives 28,678  49,377 
Accrued interest receivable and other assets 40,664  39,478 
Total assets $ 2,584,410  $ 2,567,837 
Liabilities and Stockholders’ Equity    
Deposits $ 1,904,282  $ 1,855,516 
Federal Home Loan Bank advances and other borrowings 394,090  419,167 
Junior subordinated notes 10,072  10,062 
Lease liabilities 5,780  6,386 
Derivatives 31,890  54,927 
Accrued interest payable and other liabilities 13,016  15,617 
Total liabilities 2,359,130  2,361,675 
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, 9,325,746 and 9,234,460 shares issued, 8,483,099 and 8,566,960 shares outstanding at September 30, 2021 and December 31, 2020, respectively
93  92 
Additional paid-in capital 84,959  83,125 
Retained earnings 162,952  140,431 
Accumulated other comprehensive loss (1,455) (933)
Treasury stock, 842,647 and 667,500 shares at September 30, 2021 and December 31, 2020, respectively, at cost
(21,269) (16,553)
Total stockholders’ equity 225,280  206,162 
Total liabilities and stockholders’ equity $ 2,584,410  $ 2,567,837 

See accompanying Notes to Unaudited Consolidated Financial Statements.

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Table of Contents
First Business Financial Services, Inc.
Consolidated Statements of Income (Unaudited)
For the Three Months Ended September 30, For the Nine Months Ended September 30,
  2021 2020 2021 2020
  (In Thousands, Except Per Share Data)
Interest income        
Loans and leases $ 22,947  $ 21,105  $ 69,333  $ 64,502 
Securities 855  1,004  2,524  3,262 
Short-term investments 212  167  563  644 
Total interest income 24,014  22,276  72,420  68,408 
Interest expense        
Deposits 834  1,623  2,796  7,663 
Federal Home Loan Bank advances and other borrowings 1,677  1,752  5,054  5,352 
Junior subordinated notes 280  280  832  835 
Total interest expense 2,791  3,655  8,682  13,850 
Net interest income 21,223  18,621  63,738  54,558 
Provision for loan and lease losses (2,269) 3,835  (5,295) 12,487 
Net interest income after provision for loan and lease losses 23,492  14,786  69,033  42,071 
Non-interest income        
Private wealth management service fees 2,759  2,167  7,910  6,402 
Gain on sale of Small Business Administration loans 721  760  3,002  1,598 
Service charges on deposits 956  881  2,814  2,527 
Loan fees 713  478  1,828  1,414 
Increase in cash surrender value of bank-owned life insurance
357  365  1,056  1,037 
Net gain (loss) on sale of securities —  —  29  (4)
Swap fees —  2,446  684  5,782 
Other non-interest income 1,509  311  3,208  1,385 
Total non-interest income 7,015  7,408  20,531  20,141 
Non-interest expense        
Compensation 13,351  11,857  39,263  33,705 
Occupancy 544  570  1,628  1,696 
Professional fees 1,024  943  2,803  2,621 
Data processing 746  679  2,315  2,066 
Marketing 572  356  1,474  1,169 
Equipment 260  310  767  905 
Computer software 999  1,017  3,244  2,873 
FDIC insurance 291  312  933  760 
Collateral liquidation costs 47  45  224  281 
Net loss (gain) on foreclosed properties (121) 329 
Impairment of tax credit investments —  113  —  2,066 
SBA recourse (benefit) provision (69) 57  45  53 
Loss on early extinguishment of debt —  —  —  744 
Other non-interest expense 719  620  1,300  1,977 
Total non-interest expense 18,490  16,758  54,003  51,245 
Income before income tax expense 12,017  5,436  35,561  10,967 
Income tax expense 2,819  1,143  8,396  73 
Net income $ 9,198  $ 4,293  $ 27,165  $ 10,894 
Earnings per common share        
Basic $ 1.07  $ 0.50  $ 3.15  $ 1.27 
Diluted 1.07  0.50  3.15  1.27 
Dividends declared per share 0.18  0.165  0.54  0.495 

See accompanying Notes to Unaudited Consolidated Financial Statements.
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Table of Contents
First Business Financial Services, Inc.
Consolidated Statements of Comprehensive Income (Unaudited)
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2021 2020 2021 2020
(In Thousands)
Net income $ 9,198  $ 4,293  $ 27,165  $ 10,894 
Other comprehensive income (loss), before tax
Securities available-for-sale:
Unrealized securities (losses) gains arising during the period (1,457) (377) (3,033) 3,860 
Reclassification adjustment for net (gain) loss realized in net income —  —  (29)
Securities held-to-maturity:
Amortization of net unrealized losses transferred from available-for-sale 10  22  30 
Interest rate swaps:
Unrealized gains (losses) on interest rate swaps arising during the period 520  389  2,338  (3,654)
Income tax benefit (expense) 238  (6) 180  (62)
     Total other comprehensive (loss) income (692) 16  (522) 178 
Comprehensive income $ 8,506  $ 4,309  $ 26,643  $ 11,072 

See accompanying Notes to Unaudited Consolidated Financial Statements.
3

Table of Contents
First Business Financial Services, Inc.
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
Common Shares Outstanding Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Total
  (In Thousands, Except Share Data)
Balance at January 1, 2020 8,566,044  $ 92  $ 81,188  $ 129,105  $ (1,348) $ (14,881) $ 194,156 
Net income —  —  —  3,278  —  —  3,278 
Other comprehensive income
—  —  —  —  663  —  663 
Share-based compensation - restricted shares, net
63,684  —  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 
Net income —  —  —  4,293  —  —  4,293 
Other comprehensive loss —  —  —  —  16  —  16 
Share-based compensation - restricted shares, net
(4,410) —  499  —  —  —  499 
Cash dividends ($0.165 per share)
—  —  —  (1,415) —  —  (1,415)
Treasury stock purchased (9,010) —  —  —  —  (170) (170)
Balance at September 30, 2020 8,561,714  $ 92  $ 82,620  $ 135,760  $ (1,170) $ (16,517) $ 200,785 
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Table of Contents
Common Shares Outstanding Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Total
  (In Thousands, Except Share Data)
Balance at January 1, 2021 8,566,960  $ 92  $ 83,125  $ 140,431  $ (933) $ (16,553) $ 206,162 
Net income —  —  —  9,731  —  —  9,731 
Other comprehensive loss —  —  —  —  (105) —  (105)
Share-based compensation - restricted shares and employee stock purchase plan 84,255  530  —  —  —  531 
Issuance of common stock under the employee stock purchase plan 1,775  —  39  —  —  —  39 
Cash dividends ($0.18 per share)
—  —  —  (1,541) —  —  (1,541)
Treasury stock purchased (14,795) —  —  —  —  (326) (326)
Balance at March 31, 2021 8,638,195  $ 93  $ 83,694  $ 148,621  $ (1,038) $ (16,879) $ 214,491 
Net income —  —  —  8,235  —  —  8,235 
Other comprehensive income —  —  —  —  275  —  275 
Share-based compensation - restricted shares and employee stock purchase plan 1,421  —  607  —  —  —  607 
Issuance of common stock under the employee stock purchase plan 1,694  —  42  —  —  —  42 
Cash dividends ($0.18 per share)
—  —  —  (1,556) —  —  (1,556)
Treasury stock purchased (23,549) —  —  —  —  (642) (642)
Balance at June 30, 2021 8,617,761  $ 93  $ 84,343  $ 155,300  $ (763) $ (17,521) $ 221,452 
Net income —  —  —  9,198  —  —  9,198 
Other comprehensive loss —  —  —  —  (692) —  (692)
Share-based compensation - restricted shares and employee stock purchase plan 651  —  578  —  —  —  578 
Issuance of common stock under the employee stock purchase plan 1,490  —  38  —  —  —  38 
Cash dividends ($0.18 per share)
—  —  —  (1,546) —  —  (1,546)
Treasury stock purchased (136,803) —  —  —  —  (3,748) (3,748)
Balance at September 30, 2021 8,483,099  $ 93  $ 84,959  $ 162,952  $ (1,455) $ (21,269) $ 225,280 

See accompanying Notes to Unaudited Consolidated Financial Statements.

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Table of Contents
First Business Financial Services, Inc.
Consolidated Statements of Cash Flows (Unaudited)
For the Nine Months Ended September 30,
  2021 2020
(In Thousands)
Operating activities    
Net income $ 27,165  $ 10,894 
Adjustments to reconcile net income to net cash provided by operating activities:    
Deferred income taxes, net 1,218  (2,291)
Impairment of tax credit investments —  2,066 
Provision for loan and lease losses (5,295) 12,487 
SBA recourse provision 45  53 
Derivative credit valuation adjustment (376) — 
Depreciation, amortization and accretion, net 2,696  2,509 
Loss on disposal of equipment 68  — 
Share-based compensation 1,716  1,432 
Net (gain) loss on sale of securities (29)
Increase in bank-owned life insurance policies (1,056) (1,037)
Origination of loans for sale (57,710) (56,923)
Sale of SBA loans originated for sale 63,805  48,676 
Gain on sale of loans originated for sale (3,002) (1,598)
Net loss on foreclosed properties, including impairment valuation 329 
Loan servicing right impairment valuation (78) (3)
Excess tax benefit (expense) from share-based compensation 27  (35)
Payments on operating lease liabilities (1,187) (1,166)
Payments received on operating leases 126  84 
Net increase in accrued interest receivable and other assets (4,834) (52,492)
Net (decrease) increase in accrued interest payable and other liabilities 1,455  42,429 
Net cash provided by operating activities 24,761  5,418 
Investing activities    
Proceeds from maturities, redemptions, and paydowns of available-for-sale securities 40,789  40,353 
Proceeds from maturities, redemptions, and paydowns of held-to-maturity securities 5,146  3,759 
Proceeds from sale of available-for-sale securities 14,955  839 
Purchases of available-for-sale securities (69,503) (43,751)
Proceeds from sale of foreclosed properties —  2,057 
Net decrease (increase) in loans and leases 23,969  (456,933)
Investments in limited partnerships (672) (750)
Returns of investments in limited partnerships 60  — 
Investment in historic development entities —  (259)
Distribution from historic development entities 57  30 
Investment in low-income housing (1,307) — 
Investment in Federal Home Loan Bank and Federal Reserve Bank stock (6,314) (13,422)
Proceeds from the sale of Federal Home Loan Bank stock 7,540  6,222 
Purchases of leasehold improvements and equipment, net (224) (204)
Purchases of bank-owned life insurance policies —  (8,000)
Net cash provided (used) in investing activities 14,496  (470,059)
Financing activities    
Net increase in deposits 48,766  290,996 
Proceeds from Federal Home Loan Bank advances 624,300  979,200 
Repayment of Federal Home Loan Bank advances (661,000) (845,444)
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Table of Contents
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 11,633  41 
Cash dividends paid (4,644) (4,239)
Proceeds from issuance of common stock under ESPP 119  — 
Purchase of treasury stock (4,716) (1,636)
Net cash provided by financing activities 14,458  449,267 
Net increase (decrease) in cash and cash equivalents 53,715  (15,374)
Cash and cash equivalents at the beginning of the period 56,909  67,102 
Cash and cash equivalents at the end of the period $ 110,624  $ 51,728 
Supplementary cash flow information    
Cash paid during the period for:
Interest paid on deposits and borrowings $ 10,876  $ 15,223 
Income taxes paid 9,958  3,436 
Non-cash investing and financing activities:
Right-of-use assets obtained in exchange for operating lease liabilities 316  190 
Transfer from loans and leases to foreclosed properties 145  80 
See accompany Notes to Unaudited Consolidated Financial Statements
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Table of Contents
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 metropolitan area. The Bank provides a full range of financial services to businesses, business owners, executives, professionals, and high net worth individuals. FBB also offers private wealth management services and bank consulting services. The Bank is subject to competition from other financial institutions and service providers, and is also subject to state and federal regulations. FBB has the following wholly-owned subsidiaries: First Business Specialty Finance, LLC (“FBSF”), First Madison Investment Corp. (“FMIC”), 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, 2020. 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 which affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Material estimates that could significantly change in the near-term include the value of securities and interest rate swaps, level of the allowance for loan and lease losses, lease residuals, property under operating leases, goodwill, level of the Small Business Administration (“SBA”) recourse reserve, and income taxes. The results of operations for the three and nine months ended September 30, 2021, are not necessarily indicative of results that may be expected for any other interim period or the entire fiscal year ending December 31, 2021. Certain amounts in prior periods may have been reclassified to conform to the current presentation. Subsequent events have been evaluated through the date of the issuance of the unaudited Consolidated Financial Statements. No significant subsequent events have occurred through this date requiring adjustment to the financial statements or disclosures.
The Corporation has not changed its significant accounting and reporting policies from those disclosed in the Corporation’s Form 10-K for the year ended December 31, 2020.
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (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
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data and reviewed potential methods to calculate the expected credit losses. Management is currently calculating sample expected loss computations and developing the allowance methodology and assumptions that will be used under the new standard. Management will continue to progress on its implementation project plan and improve the Corporation’s approach throughout the deferral period.
In March 2020, the FASB issued ASU No. 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. In January 2021, the FASB issued ASU 2021-01 which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. The Corporation continues to implement its transition plan toward cessation of LIBOR and the modification of its loans and other financial instruments with attributes that are either directly or indirectly influenced by LIBOR. The Corporation expects to utilize the LIBOR transition relief allowed under ASU 2020-04 and ASU 2020-01, as applicable, and does not expect such adoption to have a material impact on its accounting and disclosures. The Corporation will continue to assess the impact as the reference rate transition occurs over the next two years.
In August 2021, the FASB issued Accounting Standards Update (ASU) No. 2021-06 “Presentation of Financial Statements (Topic 205), Financial Services-Depository and Lending (Topic 942), and Financial Services-Investment Companies (Topic 946): Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No. 33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants.” This ASU amends the SEC sections of the Codification related to Final Rule Releases No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No. 33-10835, Update to Statistical Disclosures for Bank and Savings and Loan Registrants. The guidance is effective upon its addition to the FASB codification. The Corporation is assessing the impact of ASU 2021-06 and its impact on its disclosures.

Note 2 — Other Events

On March 11, 2020, the World Health Organization declared COVID-19, the disease caused by the novel coronavirus, a pandemic as a result of the global spread of the coronavirus illness. In response to the outbreak, federal and state authorities in the U.S. introduced various measures to try to limit or slow the spread of the virus, including travel restrictions, nonessential business closures, stay-at-home orders, and strict social distancing. The Corporation activated its Pandemic Preparedness Plan to protect the health of employees and clients, which included temporarily limiting lobby hours and transitioning the vast majority of the Corporation’s workforce to remote work. The Corporation did not incur any significant disruptions to its business activities during this time of transition and extended remote work.
The second half of 2020 saw improvements in economic trends, but continued waves of new cases of COVID-19 created continued uncertainty in the economic environment. However, at the end of the fourth quarter of 2020 and into the first quarter of 2021, the rollout of new vaccines and the ratification of two additional stimulus laws resulted in lower infection rates and significant improvement in the outlook of the economy. In the second quarter of 2021, the Corporation communicated return to office plans to employees. Based on the national and local guidelines, the Corporation developed a phased-in approach for returning to the office. Under this phased-in approach, employees began returning to office in early June 2021. The return to office included enhanced safety protocols and processes to provide the best working environment possible for employees.
The full long-term impact of the COVID-19 pandemic is unknown and continues to evolve. It has caused substantial disruption in international and U.S. economies, markets, and employment. The outbreak has had a significant adverse impact on certain industries the Corporation serves, including retail, restaurants and food services, hospitality, and entertainment. As of September 30, 2021, the Corporation’s aggregate outstanding exposure in these segments was $189.8 million, or 9.2% of the Corporation’s gross loans and leases less Paycheck Protection Program (“PPP”) loans. 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 the future effect of the ongoing pandemic on the Corporation’s loan portfolio.
The Corporation provided loan payment deferrals for certain borrowers impacted by COVID-19 who were current in their payments at the inception of the Corporation’s loan modification program. As of September 30, 2021, the Corporation had five deferral requests outstanding, representing $24.1 million in total loans, or 1.2% of gross loans and leases, excluding PPP loans, compared to $27.0 million, or 1.4% of gross loans and leases, excluding PPP loans as of December 31, 2020. Of the $24.1 million of deferred loans outstanding as of September 30, 2021, $23.5 million relate to three hospitality credits which received
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principal deferrals and are accruing interest and current on interest payments. For loans subject to the program, each borrower is required to resume making regularly scheduled loan payments at the end of the modification period and the deferred amounts will be moved to the end of the loan term. The loans will not be reported as past due during the deferral period.
On December 27, 2020, the Consolidated Appropriations Act, 2021 (“CAA”) was signed into law. The CAA is a $2.3 trillion spending bill that combined $900 billion in stimulus relief for the COVID-19 pandemic in the United States with a $1.4 trillion omnibus spending bill for the 2021 federal fiscal year and prevented a government shutdown. The CAA allowed for a second draw for certain businesses under the PPP. Like the original program, loan proceeds were available to help fund payroll and group health benefit costs, as well as certain mortgage interest, rent and utilities. In addition, authorized costs also included COVID-19 related worker protection costs, uninsured property damage costs due to looting or vandalism during 2020 and certain supplier costs and expenses for operations. The CAA also expanded benefit costs to include group dental, vision, life and disability benefits. All of these changes are generally retroactive to the original CARES Act, meaning that the changes may be taken into account in processing loan forgiveness with respect to an original PPP loan. The Corporation accepted and processed applications for second draw PPP loans from January 13, 2021 through the application deadline of May 31, 2021.
As of September 30, 2021, the Corporation had $65.9 million in gross PPP loans outstanding and deferred processing fees outstanding of $1.4 million. The processing fees are deferred and recognized over the contractual life of the loan, or accelerated at forgiveness, as an adjustment of yield using the interest method. During the three and nine months ended September 30, 2021, $1.7 million and $6.4 million, respectively, 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, due to the guaranty, management excluded the PPP loans from the allowance for loan and lease losses calculation. Management funded these short-term loans primarily through a combination of excess cash held at the Federal Reserve and from an increase in in-market deposits.

Note 3 — Earnings per Common Share
Earnings per common share are computed using the two-class method. Basic earnings per common share are computed by dividing net income allocated to common shares by the weighted-average number of shares outstanding during the applicable period, excluding outstanding participating securities. Participating securities include unvested restricted shares. Unvested restricted shares are considered participating securities because holders of these securities receive non-forfeitable dividends, or dividend equivalents, at the same rate as holders of the Corporation’s common stock. Diluted earnings per share are computed by dividing net income allocated to common shares adjusted for reallocation of undistributed earnings of unvested restricted shares by the weighted average number of shares determined for the basic earnings per common share computation plus the dilutive effect of common stock equivalents using the treasury stock method.
For the Three Months Ended September 30, For the Nine Months Ended September 30,
  2021 2020 2021 2020
(Dollars in Thousands, Except Share Data)
Basic earnings per common share    
Net income $ 9,198  $ 4,293  $ 27,165  $ 10,894 
Less: earnings allocated to participating securities 252  110  744  284 
Basic earnings allocated to common shareholders $ 8,946  $ 4,183  $ 26,421  $ 10,610 
Weighted-average common shares outstanding, excluding participating securities
8,340,042  8,404,084  8,380,591  8,380,676 
Basic earnings per common share $ 1.07  $ 0.50  $ 3.15  $ 1.27 
Diluted earnings per common share    
Earnings allocated to common shareholders, diluted $ 8,946  $ 4,183  $ 26,421  $ 10,610 
Weighted-average diluted common shares outstanding, excluding participating securities
8,340,042  8,404,084  8,380,591  8,380,676 
Diluted earnings per common share $ 1.07  $ 0.50  $ 3.15  $ 1.27 

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Note 4 — Share-Based Compensation
The Corporation adopted the 2019 Equity Incentive Plan (the “Plan”) during the quarter ended June 30, 2019. At the 2021 annual shareholders meeting, an amendment to the 2019 equity plan was approved, increasing the number of shares in the plan by 180,000. The Plan is administered by the Compensation Committee of the Board of Directors of the Corporation and provides for the grant of equity ownership opportunities through incentive stock options and nonqualified stock options (“Stock Options”), restricted stock, restricted stock units, dividend equivalent units, and any other type of award permitted by the Plan. As of September 30, 2021, 218,880 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 three or four years for the entire award on a straight-line basis. Upon vesting of restricted stock, the benefit of tax deductions in excess of recognized compensation expense is reflected as an income tax benefit in the unaudited Consolidated Statements of Income.
The Corporation may issue a combination of performance-based restricted stock units and restricted stock awards to its executive officers. Vesting of the performance based restricted stock units will be measured on Total Shareholder Return (“TSR”) and Return on Average Equity (“ROAE”) and will cliff-vest after a three-year measurement period based on the Corporation’s performance relative to a custom peer group. At the end of the performance period, the number of actual shares to be awarded varies between 0% and 200% of target amounts. The restricted stock awards issued to executive officers will vest ratably over a three-year period. Compensation expense is recognized for performance-based restricted stock units over the requisite service and performance period of generally three years for the entire expected award on a straight-line basis. The compensation expense for the awards expected to vest for the percentage of performance-based restricted stock units subject to the ROAE metric will be adjusted if there is a change in the expectation of ROAE. The compensation expense for the awards expected to vest for the percentage of performance based restricted stock units subject to the TSR metric are never adjusted, and are amortized utilizing the accounting fair value provided using a Monte Carlo pricing model.
Restricted stock activity for the year ended December 31, 2020 and the nine months ended September 30, 2021 was as follows:
Number of
Restricted Shares
Weighted Average
Grant-Date
Fair Value
Nonvested balance as of January 1, 2020 176,935  $ 22.51 
Granted (1)
78,775  25.82 
Vested (56,904) 22.26 
Forfeited (11,002) 22.86 
Nonvested balance as of December 31, 2020 187,804  24.29 
Granted (1)
92,960  23.55 
Vested (58,061) 22.29 
Forfeited (6,633) 22.94 
Nonvested balance as of September 30, 2021 216,070  $ 24.55 
(1)The number of restricted shares/units shown includes the shares that would be granted if the target level of performance is achieved related to the performance based restricted stock units. The number of shares actually issued may vary.

As of September 30, 2021, the Corporation had $3.6 million of unvested compensation expense, which the Corporation expects to recognize over a weighted-average period of approximately 2.2 years.

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Employee Stock Purchase Plan
During 2020, an employee stock purchase plan ("ESPP") was approved by the Corporation’s shareholders and is offered to all qualifying employees. The Company is authorized to issue up to 250,000 shares of common stock under the ESPP. The plan qualifies as an employee stock purchase plan under section 423 of the Internal Revenue Code of 1986. Under the ESPP, eligible employees may enroll in a three month offer period that begins January, April, July, and October of each year. Employees may elect to purchase a limited number of shares on the Corporation's common stock at 90% of the fair market value on the last day of the offering period. The ESPP is treated as a compensatory item for purposes of share-based compensation expense.
During the nine months ended September 30, 2021, the Corporation issued 4,959 shares of common stock under the ESPP. As of September 30, 2021, 241,074 shares remained available for issuance under the ESPP.
Share-based compensation expense related to restricted stock included in the unaudited Consolidated Statements of Income was as follows:
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2021 2020 2021 2020
(In Thousands)
Share-based compensation expense $ 578  $ 499  $ 1,716  $ 1,432 

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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 September 30, 2021
Amortized Cost Gross
Unrealized Gains
Gross
Unrealized Losses
Fair Value
  (In Thousands)
Available-for-sale:
U.S. treasuries $ 4,970  $ $ —  4,971 
U.S. government agency securities - government-sponsored enterprises 20,376  264  (75) 20,565 
Municipal securities 30,403  422  (328) 30,497 
Residential mortgage-backed securities - government issued 15,164  307  (58) 15,413 
Residential mortgage-backed securities - government-sponsored enterprises 87,940  1,188  (571) 88,557 
Commercial mortgage-backed securities - government issued 6,038  88  (46) 6,080 
Commercial mortgage-backed securities - government-sponsored enterprises 25,678  422  (369) 25,731 
Other securities
2,205  37  —  2,242 
  $ 192,774  $ 2,729  $ (1,447) $ 194,056 
  As of December 31, 2020
Amortized Cost Gross
Unrealized Gains
Gross
Unrealized Losses
Fair Value
  (In Thousands)
Available-for-sale:
U.S. government agency securities - government-sponsored enterprises
$ 22,699  $ $ (79) $ 22,629 
Municipal securities 24,067  716  (4) 24,779 
Residential mortgage-backed securities - government issued 9,894  509  —  10,403 
Residential mortgage-backed securities - government-sponsored enterprises
102,843  2,212  (49) 105,006 
Commercial mortgage-backed securities - government issued 5,289  175  —  5,464 
Commercial mortgage-backed securities - government-sponsored enterprises 12,584  781  —  13,365 
Other securities
2,205  74  —  2,279 
  $ 179,581  $ 4,476  $ (132) $ 183,925 

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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 September 30, 2021
Amortized Cost Gross
Unrealized Gains
Gross
Unrealized Losses
Fair Value
  (In Thousands)
Held-to-maturity:
Municipal securities $ 14,000  $ 261  $ (11) $ 14,250 
Residential mortgage-backed securities - government issued 2,507  67  —  2,574 
Residential mortgage-backed securities - government-sponsored enterprises
2,680  93  —  2,773 
Commercial mortgage-backed securities - government-sponsored enterprises 2,009  219  —  2,228 
  $ 21,196  $ 640  $ (11) $ 21,825 
  As of December 31, 2020
Amortized Cost Gross
Unrealized Gains
Gross
Unrealized Losses
Fair Value
  (In Thousands)
Held-to-maturity:
Municipal securities $ 17,106  $ 417  $ (15) $ 17,508 
Residential mortgage-backed securities - government issued 3,564  112  —  3,676 
Residential mortgage-backed securities - government-sponsored enterprises
3,693  163  —  3,856 
Commercial mortgage-backed securities - government-sponsored enterprises
2,011  282  —  2,293 
  $ 26,374  $ 974  $ (15) $ 27,333 

U.S. government agency securities - government-sponsored enterprises represent securities issued by 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 September 30, 2021 and seven sales of available-for-sale securities that occurred during the nine months ended September 30, 2021. There were no sales of available-for-sale securities that occurred during three months ended September 30, 2020 and one sale that occurred during the nine months ended September 30, 2020.

At September 30, 2021 and December 31, 2020, securities with a fair value of $44.4 million and $73.7 million, respectively, were pledged to secure various obligations, including interest rate swap contracts.
14

The amortized cost and fair value of securities by contractual maturity at September 30, 2021 are shown below. Actual maturities may differ from contractual maturities because issuers have the right to call or prepay certain obligations with or without call or prepayment penalties.
Available-for-Sale Held-to-Maturity
  Amortized Cost Fair Value Amortized Cost Fair Value
(In Thousands)
Due in one year or less $ 2,703  $ 2,740  $ 3,630  $ 3,647 
Due in one year through five years 6,654  6,793  7,973  8,083 
Due in five through ten years 49,213  49,790  8,022  8,452 
Due in over ten years 134,204  134,733  1,571  1,643 
  $ 192,774  $ 194,056  $ 21,196  $ 21,825 

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 September 30, 2021 and December 31, 2020. At September 30, 2021, the Corporation held 42 available-for-sale securities that were in an unrealized loss position. Such securities have not experienced credit rating downgrades; however, they have primarily declined in value due to the current interest rate environment. At September 30, 2021, the Corporation held no 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 nine months ended September 30, 2021 and 2020.
15


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 September 30, 2021
  Less than 12 Months 12 Months or Longer Total
Fair Value Unrealized
Losses
Fair Value Unrealized
Losses
Fair Value Unrealized
Losses
  (In Thousands)
Available-for-sale:
U.S. government agency securities - government-sponsored enterprises
$ 3,425  $ 75  $ —  $ —  $ 3,425  $ 75 
Municipal securities
13,384  328  —  —  13,384  328 
Residential mortgage-backed securities - government issued
7,910  58  —  —  7,910  58 
Residential mortgage-backed securities - government-sponsored enterprises
47,459  571  —  —  47,459  571 
Commercial mortgage-backed securities - government issued
2,252  46  —  —  2,252  46 
Commercial mortgage-backed securities - government-sponsored enterprises
14,932  369  —  —  14,932  369 
  $ 89,362  $ 1,447  $ —  $ —  $ 89,362  $ 1,447 
  As of December 31, 2020
  Less than 12 Months 12 Months or Longer Total
Fair Value Unrealized
Losses
Fair Value Unrealized
Losses
Fair Value Unrealized
Losses
  (In Thousands)
Available-for-sale:
U.S. government agency securities - government-sponsored enterprises
$ 11,602  $ 45  $ 4,031  $ 34  $ 15,633  $ 79 
Municipal securities
2,863  —  —  2,863 
Residential mortgage-backed securities - government-sponsored enterprises
19,078  49  —  —  19,078  49 
  $ 33,543  $ 98  $ 4,031  $ 34  $ 37,574  $ 132 

The tables below show the Corporation’s gross unrealized losses and fair value of held-to-maturity investments, aggregated by investment category and length of time that individual investments were in a continuous loss position at September 30, 2021 and December 31, 2020. At September 30, 2021, the Corporation held three held-to-maturity securities that were in an unrealized loss position. Such securities have not experienced credit rating downgrades; however, they have primarily declined in value due to the current interest rate environment. At September 30, 2021, the Corporation held two held-to-maturity securities that had been in a continuous unrealized loss position for twelve months or greater. 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 nine months ended September 30, 2021 and 2020.
16


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 September 30, 2021
  Less than 12 Months 12 Months or Longer Total
Fair Value Unrealized
Losses
Fair Value Unrealized
Losses
Fair Value Unrealized
Losses
  (In Thousands)
Held-to-maturity:
Municipal securities
$ 230  $ $ 493  $ 10  $ 723  $ 11 
  As of December 31, 2020
  Less than 12 Months 12 Months or Longer Total
Fair Value Unrealized
Losses
Fair Value Unrealized
Losses
Fair Value Unrealized
Losses
  (In Thousands)
Held-to-maturity:
Municipal securities
$ 276  $ 13  $ 213  $ $ 489  $ 15 

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:
September 30,
2021
December 31,
2020
  (In Thousands)
Commercial real estate:    
Commercial real estate — owner occupied
$ 241,977  $ 253,882 
Commercial real estate — non-owner occupied
639,423  564,532 
Land development
39,119  49,839 
Construction
139,933  141,043 
Multi-family
313,787  311,556 
1-4 family
13,487  38,284 
Total commercial real estate
1,387,726  1,359,136 
Commercial and industrial 681,065  732,318 
Direct financing leases 16,810  22,331 
Consumer and other:    
Home equity and second mortgages
4,576  7,833 
Other
35,645  28,897 
Total consumer and other
40,221  36,730 
Total gross loans and leases receivable
2,125,822  2,150,515 
Less:    
   Allowance for loan and lease losses 24,676  28,521 
   Deferred loan fees 2,516  4,545 
Loans and leases receivable, net
$ 2,098,630  $ 2,117,449 
17

As of September 30, 2021 and December 31, 2020, the Corporation had $65.9 million and $228.9 million, respectively, in gross PPP loans outstanding included in the commercial and industrial loan category and deferred processing fees outstanding of $1.4 million and $3.5 million, respectively, included in deferred loan fees. The processing fees are deferred and recognized over the contractual life of the loan, or accelerated at forgiveness, as an adjustment of yield using the interest method. The SBA provides a guaranty to the lender of 100% of principal and interest, unless the lender violated an obligation under the agreement. As loan losses are expected to be immaterial, if any at all, due to the guaranty, management excluded the PPP loans from the allowance for loan and lease losses calculation. Management funded these short-term loans primarily through a combination of excess cash held at the Federal Reserve and from an increase in in-market deposits.
The total amount of the Corporation’s ownership of SBA loans is comprised of the following:
September 30,
2021
December 31,
2020
(In Thousands)
SBA 7(a) loans $ 30,004  $ 36,266 
SBA 504 loans 34,501  26,327 
SBA Express loans and lines of credit 792  1,251 
SBA PPP loans 65,904  228,870 
Total SBA loans $ 131,201  $ 292,714 
As of September 30, 2021 and December 31, 2020, $1.9 million and $9.3 million of SBA loans were considered impaired, respectively.
Loans transferred to third parties consist of the guaranteed portions of SBA 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 loans sold during the three months ended September 30, 2021, and 2020, was $5.3 million and $7.9 million, respectively. The total principal amount of the guaranteed portions of SBA loans sold during the nine months ended September 30, 2021, and 2020, was $25.0 million and $17.2 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 nine months ended September 30, 2021, and 2020, 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 September 30, 2021, and December 31, 2020, was $90.5 million and $79.5 million, respectively.

The total principal amount of transferred participation interests in other, non-SBA originated loans during the three months ended September 30, 2021, and 2020, was $18.9 million and $7.7 million, respectively. The total principal amount of transferred participation interests in other, non-SBA originated loans during the nine months ended September 30, 2021, and 2020, was $35.8 million and $29.9 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 September 30, 2021, and December 31, 2020, was $172.2 million and $153.6 million, respectively. As of September 30, 2021, and December 31, 2020, the total amount of the Corporation’s partial ownership of these transferred loans on the unaudited Consolidated Balance Sheets was $293.7 million and $276.5 million, respectively. As of September 30, 2021, the non-SBA originated participation portfolio contained no impaired loans. As of December 31, 2020, the non-SBA originated participation portfolio contained an impaired loan totaling $3.0 million with a sold portion of $4.2 million. The Corporation does not share in the participant’s portion of any potential charge-offs. There were no loan participations purchased on the unaudited Consolidated Balance Sheets as of September 30, 2021, and the total of loan participations purchased as of December 31, 2020 was $410,000.

18

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:
September 30, 2021
  Category  
I II III IV Total
  (Dollars in Thousands)
Commercial real estate:          
Commercial real estate — owner occupied $ 198,544  $ 28,600  $ 13,724  $ 1,109  $ 241,977 
Commercial real estate — non-owner occupied 528,494  73,998  36,931  —  639,423 
Land development 38,398  721  —  —  39,119 
Construction 93,218  14,805  31,910  —  139,933 
Multi-family 282,569  19,892  11,326  —  313,787 
1-4 family 11,726  973  397  391  13,487 
      Total commercial real estate 1,152,949  138,989  94,288  1,500  1,387,726 
Commercial and industrial 579,443  61,642  34,043  5,937  681,065 
Direct financing leases, net 11,422  504  4,835  49  16,810 
Consumer and other:        
Home equity and second mortgages 4,268  236  72  —  4,576 
Other 35,501  144  —  —  35,645 
      Total consumer and other 39,769  380  72  —  40,221 
Total gross loans and leases receivable $ 1,783,583  $ 201,515  $ 133,238  $ 7,486  $ 2,125,822 
Category as a % of total portfolio 83.90  % 9.48  % 6.27  % 0.35  % 100.00  %
December 31, 2020
  Category  
I II III IV Total
  (Dollars in Thousands)
Commercial real estate:          
Commercial real estate — owner occupied $ 185,943  $ 34,917  $ 27,593  $ 5,429  $ 253,882 
Commercial real estate — non-owner occupied 432,053  90,942  37,754  3,783  564,532 
Land development 47,777  987  185  890  49,839 
Construction 104,083  26,444  10,516  —  141,043 
Multi-family 278,145  23,386  10,025  —  311,556 
1-4 family 35,053  620  2,315  296  38,284 
      Total commercial real estate 1,083,054  177,296  88,388  10,398  1,359,136 
Commercial and industrial 623,346  27,201  65,616  16,155  732,318 
Direct financing leases, net 15,597  730  5,955  49  22,331 
Consumer and other:          
Home equity and second mortgages 7,206  496  91  40  7,833 
Other 28,701  175  —  21  28,897 
      Total consumer and other 35,907  671  91  61  36,730 
Total gross loans and leases receivable $ 1,757,904  $ 205,898  $ 160,050  $ 26,663  $ 2,150,515 
Category as a % of total portfolio 81.75  % 9.57  % 7.44  % 1.24  % 100.00  %
Each credit is evaluated for proper risk rating upon origination, at the time of each subsequent renewal, upon receipt and evaluation of updated financial information from the Corporation’s borrowers, or as other circumstances dictate. The Corporation primarily uses a nine grade risk rating system to monitor the ongoing credit quality of its loans and leases. The risk rating grades follow a consistent definition and are then applied to specific loan types based on the nature of the loan. Each risk
19

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:
20

September 30, 2021
30-59
Days Past Due
60-89
Days Past Due
Greater
Than 90 Days Past Due
Total Past Due Current Total Loans and Leases
  (Dollars in Thousands)
Accruing loans and leases            
Commercial real estate:            
Owner occupied $ —  $ —  $ —  $ —  $ 240,868  $ 240,868 
Non-owner occupied —  —  —  —  639,423  639,423 
Land development —  —  —  —  39,119  39,119 
Construction —  —  —  —  139,933  139,933 
Multi-family —  —  —  —  313,787  313,787 
1-4 family —  —  —  —  13,096  13,096 
Commercial and industrial 272  128  —  400  674,781  675,181 
Direct financing leases, net 34  —  —  34  16,727  16,761 
Consumer and other:          
Home equity and second mortgages —  —  —  —  4,576  4,576 
Other —  —  —  —  35,645  35,645 
Total 306  128  —  434  2,117,955  2,118,389 
Non-accruing loans and leases            
Commercial real estate:            
Owner occupied 841  —  268  1,109  —  1,109 
Non-owner occupied —  —  —  —  —  — 
Land development —  —  —  —  —  — 
Construction —  —  —  —  —  — 
Multi-family —  —  —  —  —  — 
1-4 family 39  —  352  391  —  391 
Commercial and industrial 92  258  1,443  1,793  4,091  5,884 
Direct financing leases, net —  —  49  49  —  49 
Consumer and other:            
Home equity and second mortgages —  —  —  —  —  — 
Other —  —  —  —  —  — 
Total 972  258  2,112  3,342  4,091  7,433 
Total loans and leases            
Commercial real estate:            
Owner occupied 841  —  268  1,109  240,868  241,977 
Non-owner occupied —  —  —  —  639,423  639,423 
Land development —  —  —  —  39,119  39,119 
Construction —  —  —  —  139,933  139,933 
Multi-family —  —  —  —  313,787  313,787 
1-4 family 39  —  352  391  13,096  13,487 
Commercial and industrial 364  386  1,443  2,193  678,872  681,065 
Direct financing leases, net 34  —  49  83  16,727  16,810 
Consumer and other:          
Home equity and second mortgages —  —  —  —  4,576  4,576 
Other —  —  —  —  35,645  35,645 
Total $ 1,278  $ 386  $ 2,112  $ 3,776  $ 2,122,046  $ 2,125,822 
Percent of portfolio 0.06  % 0.02  % 0.10  % 0.18  % 99.82  % 100.00  %
21

December 31, 2020
30-59
Days Past Due
60-89
Days Past Due
Greater
Than 90 Days Past Due
Total Past Due Current Total Loans and Leases
  (Dollars in Thousands)
Accruing loans and leases            
Commercial real estate:            
Owner occupied $ —  $ —  $ —  $ —  $ 248,453  $ 248,453 
Non-owner occupied —  —  —  —  560,749  560,749 
Land development 7,784  —  —  7,784  41,165  48,949 
Construction —  —  —  —  141,043  141,043 
Multi-family —  —  —  —  311,556  311,556 
1-4 family —  46  —  46  37,988  38,034 
Commercial and industrial 663  111  —  774  715,389  716,163 
Direct financing leases, net —  —  —  —  22,282  22,282 
Consumer and other:            
Home equity and second mortgages —  —  —  —  7,793  7,793 
Other —  —  —  —  28,876  28,876 
Total 8,447  157  —  8,604  2,115,294  2,123,898 
Non-accruing loans and leases            
Commercial real estate:            
Owner occupied —  —  272  272  5,157  5,429 
Non-owner occupied —  —  3,783  3,783  —  3,783 
Land development 890  —  —  890  —  890 
Construction —  —  —  —  —  — 
Multi-family —  —  —  —  —  — 
1-4 family —  —  —  —  250  250 
Commercial and industrial 103  342  7,557  8,002  8,153  16,155 
Direct financing leases, net —  —  —  —  49  49 
Consumer and other:            
Home equity and second mortgages —  —  —  —  40  40 
Other —  —  21  21  —  21 
Total 993  342  11,633  12,968  13,649  26,617 
Total loans and leases            
Commercial real estate:            
Owner occupied —  —  272  272  253,610  253,882 
Non-owner occupied —  —  3,783  3,783  560,749  564,532 
Land development 8,674  —  —  8,674  41,165  49,839 
Construction —  —  —  —  141,043  141,043 
Multi-family —  —  —  —  311,556  311,556 
1-4 family —  46  —  46  38,238  38,284 
Commercial and industrial 766  453  7,557  8,776  723,542  732,318 
Direct financing leases, net —  —  —  —  22,331  22,331 
Consumer and other:            
Home equity and second mortgages —  —  —  —  7,833  7,833 
Other —  —  21  21  28,876  28,897 
Total $ 9,440  $ 499  $ 11,633  $ 21,572  $ 2,128,943  $ 2,150,515 
Percent of portfolio 0.44  % 0.02  % 0.54  % 1.00  % 99.00  % 100.00  %
22

The Corporation’s total impaired assets consisted of the following:
September 30,
2021
December 31,
2020
  (In Thousands)
Non-accrual loans and leases    
Commercial real estate:    
Commercial real estate — owner occupied $ 1,109  $ 5,429 
Commercial real estate — non-owner occupied —  3,783 
Land development —  890 
Construction —  — 
Multi-family —  — 
1-4 family 391  250 
Total non-accrual commercial real estate 1,500  10,352 
Commercial and industrial 5,884  16,155 
Direct financing leases, net 49  49 
Consumer and other:    
Home equity and second mortgages —  40 
Other —  21 
Total non-accrual consumer and other loans —  61 
Total non-accrual loans and leases 7,433  26,617 
Foreclosed properties, net 172  34 
Total non-performing assets 7,605  26,651 
Performing troubled debt restructurings 53  46 
Total impaired assets $ 7,658  $ 26,697 
September 30,
2021
December 31,
2020
Total non-accrual loans and leases to gross loans and leases 0.35  % 1.24  %
Total non-performing assets to total gross loans and leases plus foreclosed properties, net 0.36  1.24 
Total non-performing assets to total assets 0.29  1.04 
Allowance for loan and lease losses to gross loans and leases 1.16  1.33 
Allowance for loan and lease losses to non-accrual loans and leases 331.98  107.15 
As of September 30, 2021 and December 31, 2020, $857,000 and $6.5 million of the non-accrual loans and leases were considered troubled debt restructurings, respectively. As of September 30, 2021 and December 31, 2020, $201,000 and $760,000 in specific reserves were allocated to troubled debt restructurings, respectively. There were no unfunded commitments associated with troubled debt restructured loans and leases as of September 30, 2021.
All loans and leases modified as a troubled debt restructuring are measured for impairment. The nature and extent of the impairment of restructured loans, including those which have experienced a default, is considered in the determination of an appropriate level of the allowance for loan and lease losses.
23

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 September 30, For the Nine Months Ended September 30,
2021
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 73  70  129  121 
Total $ 73  $ 70  2 $ 129  $ 121 

For the Three Months Ended September 30, For the Nine Months Ended September 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 —  —  3 6,007  5,589 
Total —  $ —  $ —  5 $ 6,306  $ 5,861 

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 nine months ended September 30, 2021, the modification of terms primarily consisted of payment schedule modifications. During the three and nine months ended September 30, 2020, the modification of terms primarily consisted of payment schedule modifications or principal reductions.

There was one commercial and industrial loan totaling $281,000 modified in a troubled debt restructuring during the previous 12 months which subsequently defaulted during the three and nine months ended September 30, 2021. There were two commercial and industrial loans totaling $703,000 and two owner-occupied commercial real estate loans totaling $272,000 modified in a troubled debt restructuring which subsequently defaulted during the three and nine months ended September 30, 2020.

24

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 Nine Months Ended September 30, 2021
Recorded
Investment
(1)
Unpaid
Principal
Balance
Impairment
Reserve
Average
Recorded
Investment
(2)
Foregone
Interest
Income
Interest
Income
Recognized
Net
Foregone
Interest
Income
  (In Thousands)
With no impairment reserve recorded:
             
Commercial real estate:              
Owner occupied $ 1,109  $ 1,147  $ —  $ 2,771  $ 135  $ —  $ 135 
Non-owner occupied —  —  —  3,049  233  16  217 
Land development
—  —  —  10  —  —  — 
Construction
—  —  —  —  —  —  — 
Multi-family —  —  —  —  —  —  — 
1-4 family 391  396  —  261  55  18  37 
Commercial and industrial 3,485  3,586  —  8,662  445  113  332 
Direct financing leases, net —  —  —  —  —  —  — 
Consumer and other:              
Home equity and second mortgages
—  —  —  53  (2)
Other —  —  —  11  23  —  23 
Total 4,985  5,129  —  14,817  898  156  742 
With impairment reserve recorded:              
Commercial real estate:              
Owner occupied —  —  —  —  —  —  — 
Non-owner occupied —  —  —  —  —  —  — 
Land development
—  —  —  —  —  —  — 
Construction —  —  —  —  —  —  — 
Multi-family —  —  —  —  —  —  — 
1-4 family —  —  —  —  —  —  — 
Commercial and industrial 2,452  2,452  1,521  1,834  102  94 
Direct financing leases, net 49  49  49  49  — 
Consumer and other:              
Home equity and second mortgages
—  —  —  —  —  —  — 
Other —  —  —  —  —  —  — 
Total 2,501  2,501  1,570  1,883  104  96 
Total:              
Commercial real estate:              
Owner occupied 1,109  1,147  —  2,771  135  —  135 
Non-owner occupied —  —  —  3,049  233  16  217 
Land development
—  —  —  10  —  —  — 
Construction —  —  —  —  —  —  — 
Multi-family —  —  —  —  —  —  — 
1-4 family 391  396  —  261  55  18  37 
Commercial and industrial 5,937  6,038  1,521  10,496  547  121  426 
Direct financing leases, net 49  49  49  49  — 
Consumer and other:              
Home equity and second mortgages —  —  —  53  (2)
Other —  —  —  11  23  —  23 
Grand total $ 7,486  $ 7,630  $ 1,570  $ 16,700  $ 1,002  $ 164  $ 838 
(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.
25

As of and for the Year Ended December 31, 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 $ 4,338  $ 4,365  $ —  $ 4,565  $ 291  $ 72  $ 219 
   Non-owner occupied 3,783  6,563  —  1,519  486  —  486 
   Land development 890  5,187  —  1,192  14  —  14 
   Construction —  —  —  —  —  —  — 
   Multi-family —  —  —  —  —  —  — 
   1-4 family 46  51  —  307  31  141  (110)
Commercial and industrial 9,888  12,337  —  13,951  1,219  423  796 
Direct financing leases, net —  —  —  89  —  —  — 
Consumer and other:              
   Home equity and second mortgages
—  —  —  —  —  — 
   Other 21  688  —  85  41  —  41 
      Total 18,966  29,191  —  21,709  2,082  636  1,446 
With impairment reserve recorded:              
Commercial real estate:              
   Owner occupied 1,091  4,792  471  2,349  384  —  384 
   Non-owner occupied —  —  —  —  —  —  — 
   Land development —  —  —  —  —  —  — 
   Construction —  —  —  —  —  —  — 
   Multi-family —  —  —  —  —  —  — 
   1-4 family 250  250  29  21  —  —  — 
Commercial and industrial 6,267  6,972  3,125  3,585  324  —  324 
Direct financing leases, net 49  49  49  39  — 
Consumer and other:              
   Home equity and second mortgages
40  40  —  — 
   Other —  —  —  —  —  —  — 
      Total 7,697  12,103  3,681  5,994  712  —  712 
Total:              
Commercial real estate:              
   Owner occupied 5,429  9,157  471  6,914  675  72  603 
   Non-owner occupied 3,783  6,563  —  1,519  486  —  486 
   Land development 890  5,187  —  1,192  14  —  14 
   Construction —  —  —  —  —  —  — 
   Multi-family —  —  —  —  —  —  — 
   1-4 family 296  301  29  328  31  141  (110)
Commercial and industrial 16,155  19,309  3,125  17,536  1,543  423  1,120 
Direct financing leases, net 49  49  49  128  — 
Consumer and other:            
Home equity and second mortgages
40  40  — 
Other 21  688  —  85  41  —  41 
      Grand total $ 26,663  $ 41,294  $ 3,681  $ 27,703  $ 2,794  $ 636  $ 2,158 
(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.
26

The difference between the recorded investment of loans and leases and the unpaid principal balance of $144,000 and $14.6 million as of September 30, 2021, and December 31, 2020, respectively, represents partial charge-offs of loans and leases resulting from losses due to the valuation of the collateral securing the loans and leases being below the carrying values of the loans and leases. Impaired loans and leases also included $53,000 and $46,000 of loans as of September 30, 2021, and December 31, 2020, respectively, that were performing troubled debt restructurings, and although not on non-accrual, were reported as impaired due to the concession in terms. When a loan is placed on non-accrual, interest accrual is discontinued and previously accrued but uncollected interest is deducted from interest income. Cash payments collected on non-accrual loans are first applied to such loan’s principal. Foregone interest represents the interest that was contractually due on the loan but not received or recorded. To the extent the amount of principal on a non-accrual loan is fully collected and additional cash is received, the Corporation will recognize interest income.
To determine the level and composition of the allowance for loan and lease losses, the Corporation categorizes the portfolio into segments with similar risk characteristics. First, the Corporation evaluates loans and leases for potential impairment classification. The Corporation analyzes each loan and lease determined to be impaired on an individual basis to determine a specific reserve based upon the estimated value of the underlying collateral for collateral-dependent loans, or alternatively, the present value of expected cash flows. The Corporation applies historical trends from established risk factors to each category of loans and leases that has not been individually evaluated for the purpose of establishing the general portion of the allowance.
A summary of the activity in the allowance for loan and lease losses by portfolio segment is as follows:
  As of and for the Three Months Ended September 30, 2021
Commercial
Real Estate
Commercial
and
Industrial
Consumer
and Other
Total
  (In Thousands)
Beginning balance $ 16,876  $ 7,881  $ 918  $ 25,675 
Charge-offs (7) (356) (1) (364)
Recoveries 1,501  128  1,634 
Net recoveries (charge-offs) 1,494  (228) 1,270 
Provision for loan and lease losses (2,736) 563  (96) (2,269)
Ending balance $ 15,634  $ 8,216  $ 826  $ 24,676 
  As of and for the Three Months Ended September 30, 2020
Commercial
Real Estate
Commercial
and
Industrial
Consumer
and Other
Total
  (In Thousands)
Beginning balance $ 16,438  $ 10,179  $ 847  $ 27,464 
Charge-offs —  (505) —  (505)
Recoveries —  21  23 
Net (charge-offs) recoveries —  (484) (482)
Provision for loan and lease losses 3,742  127  (34) 3,835 
Ending balance $ 20,180  $ 9,822  $ 815  $ 30,817 
27

  As of and for the Nine Months Ended September 30, 2021
Commercial
Real Estate
Commercial
and
Industrial
Consumer
and Other
Total
  (In Thousands)
Beginning balance $ 17,157  $ 10,593  $ 771  $ 28,521 
Charge-offs (256) (3,121) (25) (3,402)
Recoveries 3,804  1,041  4,852 
Net recoveries (charge-offs) 3,548  (2,080) (18) 1,450 
Provision for loan and lease losses (5,071) (297) 73  (5,295)
Ending balance $ 15,634  $ 8,216  $ 826  $ 24,676 
  As of and for the Nine Months Ended September 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) (1,414) (13) (1,454)
Recoveries 259  264 
Net charge-offs (24) (1,155) (11) (1,190)
Provision for loan and lease losses 9,352  2,899  236  12,487 
Ending balance $ 20,180  $ 9,822  $ 815  $ 30,817 
28

The following tables provide information regarding the allowance for loan and lease losses and balances by type of allowance methodology.
  As of September 30, 2021
Commercial
Real Estate
Commercial
and
Industrial
Consumer
and Other
Total
  (In Thousands)
Allowance for loan and lease losses:        
Collectively evaluated for impairment $ 15,634  $ 6,646  $ 826  $ 23,106 
Individually evaluated for impairment —  1,570  —  1,570 
Total $ 15,634  $ 8,216  $ 826  $ 24,676 
Loans and lease receivables:        
Collectively evaluated for impairment $ 1,386,226  $ 691,889  $ 40,221  $ 2,118,336 
Individually evaluated for impairment 1,500  5,986  —  7,486 
Total $ 1,387,726  $ 697,875  $ 40,221  $ 2,125,822 
  As of December 31, 2020
Commercial
Real Estate
Commercial
and
Industrial
Consumer
and Other
Total
  (In Thousands)
Allowance for loan and lease losses:        
Collectively evaluated for impairment $ 16,657  $ 7,419  $ 764  $ 24,840 
Individually evaluated for impairment 500  3,174  3,681 
Total $ 17,157  $ 10,593  $ 771  $ 28,521 
Loans and lease receivables:        
Collectively evaluated for impairment $ 1,348,738  $ 738,445  $ 36,669  $ 2,123,852 
Individually evaluated for impairment 10,398  16,204  61  26,663 
Total $ 1,359,136  $ 754,649  $ 36,730  $ 2,150,515 


Note 7 — Leases
The Corporation leases various office spaces and specialized lending 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. During 2021, the Corporation extended the term of two of its office spaces by one and three years, resulting in a $316,000 increase in the right-of-use assets in exchange for a lease liability.
The Corporation entered into a sublease for office space it vacated in its Kansas City metropolitan area which expires in 2023.
29

The components of total lease expense were as follows:
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2021 2020 2021 2020
(In Thousands)
Operating lease cost
$ 381  $ 373  $ 1,131  $ 1,116 
Short-term lease cost
31  52  119  174 
Variable lease cost
126  141  365  394 
Less: sublease income
(43) (28) (126) (84)
Total lease cost, net
$ 495  $ 538  $ 1,489  $ 1,600 

Quantitative information regarding the Corporation’s operating leases was as follows:
September 30, 2021 December 31, 2020
Weighted-average remaining lease term (in years)
5.18 5.80
Weighted-average discount rate
2.48  % 3.03  %
The following maturity analysis shows the undiscounted cash flows due on the Corporation’s operating lease liabilities:
(In Thousands)
2021 $ 414 
2022 1,628 
2023 1,103 
2024 816 
2025 666 
Thereafter 1,642 
Total undiscounted cash flows 6,269 
Discount on cash flows (489)
Total lease liability $ 5,780 


Note 8 — Other Assets
A summary of accrued interest receivable and other assets was as follows:
  September 30, 2021 December 31, 2020
  (In Thousands)
Accrued interest receivable $ 5,565  $ 8,564 
Net deferred tax asset 4,917  7,217 
Investment in historic development entities 2,299  2,356 
Investment in low-income housing development entity 1,307  — 
Investment in a community development entity 5,306  5,306 
Investment in limited partnerships 9,233  6,673 
Investment in Trust II 315  315 
Prepaid expenses 2,222  2,165 
Other assets 9,500  6,882 
Total accrued interest receivable and other assets $ 40,664  $ 39,478 

30

Note 9 — Deposits
The composition of deposits is shown below. Average balances represent year to date averages.
  September 30, 2021 December 31, 2020
Balance Average
Balance
Average Rate Balance Average
Balance
Average Rate
  (Dollars in Thousands)
Non-interest-bearing transaction accounts
$ 526,047  $ 523,368  —  % $ 472,818  $ 412,825  —  %
Interest-bearing transaction accounts
517,248  509,709  0.20  503,992  392,576  0.37 
Money market accounts 728,751  674,858  0.17  641,504  651,402  0.44 
Certificates of deposit 57,598  48,540  0.99  64,694  111,698  1.97 
Wholesale deposits 74,638  139,205  0.79  172,508  142,591  1.71 
Total deposits $ 1,904,282  $ 1,895,680  0.20  $ 1,855,516  $ 1,711,092  0.52 

A summary of annual maturities of in-market and wholesale certificates of deposit at September 30, 2021 is as follows:
(In Thousands)
Maturities during the year ended December 31,  
2021 $ 41,646 
2022 31,840 
2023 2,589 
2024 349 
2025 322 
Thereafter 490 
$ 77,236 

Wholesale deposits include $19.6 million and $55.0 million of wholesale certificates of deposit and non-reciprocal interest-bearing transaction accounts, respectively, at September 30, 2021, compared to $47.5 million and $125.0 million of wholesale certificates of deposit and non-reciprocal interest-bearing transaction accounts, respectively, at December 31, 2020.

Deposits include $10.0 million and $28.7 million of certificates of deposit and wholesale deposits which are denominated in amounts greater than $250,000 at September 30, 2021 and December 31, 2020, respectively.

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.
  September 30, 2021 December 31, 2020
Balance Weighted Average
Balance
Weighted
Average Rate
Balance Weighted Average
Balance
Weighted
Average Rate
  (Dollars in Thousands)
Federal funds purchased $ —  $ —  —  % $ —  $ 71  0.69  %
Federal Reserve PPPLF
—  —  —  —  15,207  0.35 
FHLB advances
357,800  384,581  1.30  394,500  379,891  1.45 
Line of credit —  100  2.89  —  —  — 
Other borrowings 12,512  6,950  4.28  920  676  12.60 
Subordinated notes payable 23,778  23,761  5.94  23,747  23,725  5.95 
Junior subordinated notes 10,072  10,066  11.02  10,062  10,054  11.09 
  $ 404,162  $ 425,458  1.84  $ 429,229  $ 429,624  1.91 
31

A summary of annual maturities of borrowings at September 30, 2021 is as follows:
(In Thousands)
Maturities during the year ended December 31,  
2021 $ 128,290 
2022 34,000 
2023 37,300 
2024 35,500 
2025 24,547 
Thereafter 144,525 
$ 404,162 
During the second quarter of 2020, the Corporation tested its ability to borrow from the Federal Reserve Paycheck Protection Program Liquidity Facility (“PPPLF”) in the event funding was required to support the Banks PPP lending efforts. On April 28, 2020, the Corporation borrowed $29.6 million from the PPPLF at a rate of 0.35%. As of November 2, 2020, the borrowing was paid in full.
As of September 30, 2021, the Corporation had other borrowings of $12.5 million, which consisted of $11.5 million of sold loans accounted for as secured borrowings because they did not qualify for true sale accounting, and borrowings associated with our investment in a community development entity.
As of September 30, 2021 and December 31, 2020, the Corporation was in compliance with its debt covenants under its third-party secured senior line of credit. Per the promissory note dated February 19, 2021, the Corporation pays a fee on this line of credit. During both the nine months ended September 30, 2021 and 2020, the Corporation incurred interest expense of $10,000 due to this fee.

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 $760,000 at September 30, 2021, which is reported in accrued interest payable and other liabilities on the unaudited Consolidated Balance Sheets.

32

The summary of the activity in the SBA recourse reserve is as follows:
As of and for the Three Months Ended September 30, As of and for the Nine Months Ended September 30,
2021 2020 2021 2020
  (In Thousands)
Balance at the beginning of the period $ 829  $ 1,007  $ 723  $ 1,345 
SBA recourse (benefit) provision (69) 57  45  53 
Charge-offs, net —  (4) (8) (338)
Balance at the end of the period $ 760  $ 1,060  $ 760  $ 1,060 

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.
33

Assets and liabilities measured at fair value on a recurring basis, segregated by fair value hierarchy level, are summarized below:
September 30, 2021
Fair Value Measurements Using  
Level 1 Level 2 Level 3 Total
  (In Thousands)
Assets:      
Securities available-for-sale:
U.S. treasuries $ —  $ 4,971  $ —  $ 4,971 
U.S. government agency securities - government-sponsored enterprises —  20,565  —  20,565 
Municipal securities —  30,497  —  30,497 
Residential mortgage-backed securities - government issued —  15,413  —  15,413 
Residential mortgage-backed securities - government-sponsored enterprises —  88,557  —  88,557 
Commercial mortgage-backed securities - government issued —  6,080  —  6,080 
Commercial mortgage-backed securities - government-sponsored enterprises —  25,731  —  25,731 
Other securities —  2,242  —  2,242 
Interest rate swaps —  28,678  —  28,678 
Liabilities:      
Interest rate swaps —  31,890  —  31,890 
December 31, 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 $ —  $ 22,629  $ —  $ 22,629 
Municipal securities —  24,779  —  24,779 
Residential mortgage-backed securities - government issued —  10,403  —  10,403 
Residential mortgage-backed securities - government-sponsored enterprises —  105,006  —  105,006 
Commercial mortgage-backed securities - government issued —  5,464  —  5,464 
Commercial mortgage-backed securities - government-sponsored enterprises —  13,365  —  13,365 
Other securities —  2,279  —  2,279 
Interest rate swaps —  49,377  —  49,377 
Liabilities:  
Interest rate swaps —  54,927  —  54,927 

For assets and liabilities measured at fair value on a recurring basis, there were no transfers between the levels during the three and nine months ended September 30, 2021 or the year ended December 31, 2020 related to the above measurements.
34

Assets and liabilities measured at fair value on a non-recurring basis, segregated by fair value hierarchy are summarized below:
September 30, 2021
  Fair Value Measurements Using
  Level 1 Level 2 Level 3 Total
  (In Thousands)
Impaired loans $ —  $ —  $ 3,959  $ 3,959 
Foreclosed properties —  —  172  172 
Loan servicing rights —  —  1,559  1,559 
December 31, 2020
  Fair Value Measurements Using
  Level 1 Level 2 Level 3 Total
  (In Thousands)
Impaired loans $ —  $ —  $ 17,203  $ 17,203 
Foreclosed properties —  —  34  34 
Loan servicing rights —  —  1,325  1,325 

Impaired loans were written down to the fair value of their underlying collateral less costs to sell of $4.0 million and $17.2 million at September 30, 2021 and December 31, 2020, respectively, through the establishment of specific reserves or by recording charge-offs when the carrying value exceeded the fair value of the underlying collateral of impaired loans. Valuation techniques consistent with the market approach, income approach, or cost approach were used to measure fair value. 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 13% - 90% as of the measurement date of September 30, 2021. The weighted average of those unobservable inputs was 26%. The majority of the impaired loans are considered collateral dependent loans or are supported by an 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:
35

September 30, 2021
Carrying
Amount
Fair Value
Total Level 1 Level 2 Level 3
  (In Thousands)
Financial assets:    
Cash and cash equivalents $ 110,624  $ 110,624  $ 110,624  $ —  $ — 
Securities available-for-sale 194,056  194,056  —  194,056  — 
Securities held-to-maturity 21,196  21,825  —  21,825  — 
Loans held for sale 5,603  6,107  —  6,107  — 
Loans and lease receivables, net 2,098,630  2,110,691  —  —  2,110,691 
Federal Home Loan Bank stock
12,351  N/A N/A N/A N/A
Accrued interest receivable 5,565  5,565  5,565  —  — 
Interest rate swaps 28,678  28,678  —  28,678  — 
Financial liabilities:  
Deposits 1,904,282  1,909,045  1,831,335  77,710  — 
Federal Home Loan Bank advances and other borrowings 394,090  402,993  —  402,993  — 
Junior subordinated notes 10,072  8,936  —  —  8,936 
Accrued interest payable 687  687  687  —  — 
Interest rate swaps 31,890  31,890  —  31,890  — 
Off-balance sheet items:  
Standby letters of credit 207  207  —  —  207 
N/A = The fair value is not applicable due to restrictions placed on transferability
  December 31, 2020
Carrying
Amount
Fair Value
Total Level 1 Level 2 Level 3
  (In Thousands)
Financial assets:    
Cash and cash equivalents $ 56,909  $ 56,909  $ 56,909  $ —  $ — 
Securities available-for-sale 183,925  183,925  —  183,925  — 
Securities held-to-maturity 26,374  27,333  —  27,333  — 
Loans held for sale 8,695  9,478  —  9,478  — 
Loans and lease receivables, net 2,117,449  2,121,107  —  —  2,121,107 
Federal Home Loan Bank stock
13,578  N/A N/A N/A N/A
Accrued interest receivable 8,564  8,564  8,564  —  — 
Interest rate swaps 49,377  49,377  —  49,377  — 
Financial liabilities:  
Deposits 1,855,516  1,856,910  1,743,314  113,596  — 
Federal Home Loan Bank advances and other borrowings
419,167  429,347  —  429,347  — 
Junior subordinated notes 10,062  9,986  —  —  9,986 
Accrued interest payable 1,578  1,578  1,578  —  — 
Interest rate swaps 54,927  54,927  —  54,927  — 
Off-balance sheet items:  
Standby letters of credit 75  75  —  —  75 
N/A = The fair value is not applicable due to restrictions placed on transferability
36

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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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. As of September 30, 2021, the credit valuation allowance was $85,000 compared to $461,000 as of December 31, 2020.
At September 30, 2021, the aggregate amortizing notional value of interest rate swaps with various commercial borrowers was $634.0 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 January 2024 and March 2038. Commercial borrower swaps are completed independently with each borrower and are not subject to master netting arrangements. These commercial borrower swaps were reported on the unaudited Consolidated Balance Sheet as a derivative asset of $28.7 million and a derivative liability of $6.1 million.
At September 30, 2021, the aggregate amortizing notional value of interest rate swaps with dealer counterparties was also $634.0 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 January 2024 through March 2038. 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 $22.6 million. The gross amount of dealer counterparty swaps, without regard to the enforceable master netting agreement, was a gross derivative liability of $28.7 million and $6.1 million gross derivative asset. No right of offset existed with dealer counterparty swaps as of September 30, 2021.

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 nine months ended September 30, 2021 and 2020 had an insignificant impact on the unaudited Consolidated Statements of Income.

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

As of September 30, 2021, the aggregate notional value of interest rate swaps designated as cash flow hedges was $114.0 million. These interest rate swaps mature between December 2021 and December 2027. A pre-tax unrealized gain of $520,000 and $2.3 million was recognized in other comprehensive income for the three and nine months ended September 30, 2021, and there was no ineffective portion of these hedges.
38

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        
September 30, 2021 Derivatives $ 28,678  Derivatives $ 28,678 
December 31, 2020 Derivatives $ 49,377  Derivatives $ 49,377 
Derivatives designated as hedging instruments        
September 30, 2021
Accumulated other comprehensive income (1)
$ 3,212  Derivatives $ 3,212 
December 31, 2020
Accumulated other comprehensive income (1)
$ 5,550  Derivatives $ 5,550 
(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 shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividend; (ii) the prospective rate of earnings retention is not consistent with the bank holding company’s capital needs and overall current and prospective financial condition; or (iii) the bank holding company will not meet, or is in danger of not meeting, its minimum regulatory capital ratios. Management intends, when appropriate under regulatory guidelines, to consult with the Federal Reserve Bank of Chicago and provide it with information on the Corporation’s then-current and prospective earnings and capital position in advance of declaring any cash dividends. As a Wisconsin corporation, the Corporation is subject to the limitations of the Wisconsin Business Corporation Law, which prohibit the Corporation from paying dividends if such payment would: (i) render the Corporation unable to pay its debts as they become due in the usual course of business, or (ii) result in the Corporation’s assets being less than the sum of its total liabilities plus the amount needed to satisfy the preferential rights upon dissolution of any shareholders with preferential rights superior to those shareholders receiving the dividend.
The Bank is also subject to certain legal, regulatory, and other restrictions on their ability to pay dividends to the Corporation. As a bank holding company, the payment of dividends by the Bank to the Corporation is one of the sources of funds the Corporation could use to pay dividends, if any, in the future and to make other payments. Future dividend decisions by the Bank and the Corporation will continue to be subject to compliance with various legal, regulatory, and other restrictions as defined from time to time.
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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.
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As of September 30, 2021, 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 September 30, 2021
Actual Minimum Required for Capital Adequacy Purposes For Capital Adequacy Purposes Plus Capital Conservation Buffer Minimum Required to Be Well
Capitalized Under Prompt Corrective Action Requirements
  Amount Ratio Amount Ratio Amount Ratio Amount Ratio
  (Dollars in Thousands)
Total capital
(to risk-weighted assets)
Consolidated $ 274,977  11.14  % $ 197,512  8.00  % $ 259,234  10.50  % N/A N/A
First Business Bank 271,812  11.02  197,323  8.00  258,986  10.50  246,654  10.00  %
Tier 1 capital
(to risk-weighted assets)
Consolidated $ 225,667  9.14  % $ 148,134  6.00  % $ 209,856  8.50  % N/A N/A
First Business Bank 246,290  9.99  147,992  6.00  209,656  8.50  197,323  8.00 
Common equity tier 1 capital
(to risk-weighted assets)
Consolidated $ 215,605  8.73  % $ 111,100  4.50  % $ 172,823  7.00  % N/A N/A
First Business Bank 246,290  9.99  110,994  4.50  172,658  7.00  160,325  6.50 
Tier 1 leverage capital
(to adjusted assets)
Consolidated $ 225,677  8.69  % $ 103,879  4.00  % $ 103,879  4.00  % N/A N/A
First Business Bank 246,290  9.50  103,701  4.00  103,701  4.00  129,626  5.00 
As of December 31, 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 $ 258,607  11.25  % $ 183,965  8.00  % $ 241,454  10.50  % N/A N/A
First Business Bank 251,116  10.97  183,053  8.00  240,257  10.50  228,816  10.00  %
Tier 1 capital
(to risk-weighted assets)
Consolidated $ 206,104  8.96  % $ 137,974  6.00  % $ 195,463  8.50  % N/A N/A
First Business Bank 222,500  9.72  137,290  6.00  194,494  8.50  183,053  8.00 
Common equity tier 1 capital
(to risk-weighted assets)
Consolidated $ 196,042  8.53  % $ 103,480  4.50  % $ 160,970  7.00  % N/A N/A
First Business Bank 222,500  9.72  102,967  4.50  160,171  7.00  148,731  6.50 
Tier 1 leverage capital
(to adjusted assets)
Consolidated $ 206,104  7.99  % $ 103,228  4.00  % $ 103,228  4.00  % N/A N/A
First Business Bank 222,500  8.67  102,635  4.00  102,635  4.00  128,294  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, which may affect 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, 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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Table of Contents
Overview
    We are a registered bank holding company incorporated under the laws of the State of Wisconsin and are engaged in the commercial banking business through our wholly-owned banking subsidiary, FBB. All of our operations are conducted through FBB and First Business Specialty Finance, LLC (“FBSF”), a wholly-owned subsidiary of FBB. We operate as a business bank focusing on delivering a full line of commercial banking products and services tailored to meet the specific needs of small and medium-sized businesses, business owners, executives, professionals, and high net worth individuals. Our products and services include those for business banking, private wealth, and bank consulting. Within business banking, we offer commercial lending, consumer and other lending, asset-based lending, accounts receivable financing, equipment financing, floorplan financing, vendor financing, SBA lending and servicing, 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 within our commercial bank markets and skilled expertise within our nationwide specialty finance business lines, combined with the efficiency of centralized administrative functions, such as information technology, loan and deposit operations, finance and accounting, credit administration, compliance, marketing, and human resources. Our focused model allows experienced staff to provide the level of financial expertise needed to develop and maintain long-term relationships with our clients.
Financial Performance Summary

    Results as of and for the three and nine months ended September 30, 2021 include:

Net income totaled $9.2 million, or diluted earnings per share of $1.07, for the three months ended September 30, 2021, compared to $4.3 million, or diluted earnings per share of $0.50, for the same period in 2020. Net income totaled $27.2 million, or diluted earnings per share of $3.15, for the nine months ended September 30, 2021, compared to $10.9 million, or diluted earnings per share of $1.27, for the same period in 2020.
Annualized return on average assets and annualized return on average equity for the three months ended September 30, 2021 measured 1.41% and 16.39%, respectively, compared to 0.68% and 8.58% for the same period in 2020. Annualized return on average assets and annualized return on average equity for the nine months ended September 30, 2021 measured 1.39% and 16.63%, respectively, compared to 0.62% and 7.49% for the same period in 2020.
Pre-tax, pre-provision adjusted earnings, which excludes certain one-time and discrete items, totaled $9.7 million for the three months ended September 30, 2021, up 3.9% from the same period in 2020. Pre-tax, pre-provision adjusted return on average assets was 1.49% for the three months ended September 30, 2021, compared to 1.47% for the same period in 2020. Pre-tax, pre-provision adjusted earnings totaled $30.3 million for the nine months ended September 30, 2021, up 13.6% from the same period in 2020. Pre-tax, pre-provision adjusted return on average assets was 1.55% for the nine months ended September 30, 2021, compared to 1.51% for the same period in 2020.
Net interest margin was 3.45% for the three months ended September 30, 2021, up from 3.14% for the same period in 2020. Adjusted net interest margin, which excludes certain one-time and volatile items, was 3.22% for the three months ended September 30, 2021 compared to 3.24% for the same period in 2020. Net interest margin was 3.46% for the nine months ended September 30, 2021, up from 3.30% for the same period in 2020. Adjusted net interest margin was 3.21% for the nine months ended September 30, 2021 compared to 3.29% for the same period in 2020.
Fees in lieu of interest, defined as prepayment fees, asset-based loan fees, non-accrual interest, and loan fee amortization, totaled $2.8 million for the three months ended September 30, 2021 compared to $1.5 million for the three months ended September 30, 2020. Fees in lieu of interest totaled $9.5 million for the nine months ended September 30, 2021 compared to $4.6 million for the nine months ended September 30, 2020. PPP fee income, included in loan fee amortization, was $1.7 million and $6.4 million for the three and nine months ended September 30, 2021 compared to $1.1 million and $2.0 million for the same periods in 2020.
Top line revenue, defined as net interest income plus non-interest income, totaled $28.2 million for the three months ended September 30, 2021, up 8.5% from the same period in 2020. Top line revenue totaled $84.3 million for the nine months ended September 30, 2021, up 12.8% from the same period in 2020.
Provision for loan and lease losses was a benefit of $2.3 million for the three months ended September 30, 2021 compared to an expense of $3.8 million for the same period in 2020. Provision for loan and lease losses was a benefit of $5.3 million for the nine months ended September 30, 2021 compared to an expense of $12.5 million for the same period in 2020.
The efficiency ratio was 65.68% for the three months ended September 30, 2021, up from 64.16% for the three months ended September 30, 2020. The efficiency ratio improved to 64.02% for the nine months ended September 30, 2021, down from 64.29% for the nine months ended September 30, 2020.
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Total assets at September 30, 2021 increased $16.6 million to $2.584 billion from $2.568 billion at December 31, 2020.
Period-end gross loans and leases receivable were $2.123 billion and $2.146 billion as of September 30, 2021 and December 31, 2020, respectively. Average gross loans and leases of $2.179 billion increased $226.2 million, or 11.6%, for the nine months ended September 30, 2021, compared to $1.953 billion for the same period in 2020.
Period-end gross loans and leases receivable, excluding net PPP loans, at September 30, 2021 increased $138.2 million, or 9.6% annualized, to $2.059 billion from $1.921 billion as of December 31, 2020. Average gross loans and leases, excluding net PPP loans, of $1.993 billion increased $232.9, or 13.2%, for the nine months ended September 30, 2021, compared to $1.760 billion for the same period in 2020.
Period-end gross PPP loans and PPP deferred processing fees were $65.9 million and $1.4 million, respectively, at September 30, 2021. Average PPP loans, net of deferred processing fees, were $185.7 million for the nine months ended September 30, 2021 compared to $192.5 million for the same period in 2020.
Non-performing assets were $7.6 million and 0.29% of total assets as of September 30, 2021, compared to $26.7 million and 1.04% of total assets as of December 31, 2020. Non-performing assets to total assets, excluding net PPP loans, was 0.30% as of September 30, 2021, compared to 1.14% as of December 31, 2020.
The allowance for loan and lease losses decreased $3.8 million, or 13.5%, compared to December 31, 2020. The allowance for loan and lease losses decreased to 1.16% of total loans, compared to 1.33% at December 31, 2020. Excluding net PPP loans, the allowance for loan and lease losses decreased to 1.20% of total loans as of September 30, 2021, compared to 1.48% as of December 31, 2020.
Period-end in-market deposits at September 30, 2021 increased $146.6 million to $1.830 billion from $1.683 billion as of December 31, 2020. Average in-market deposits of $1.756 billion increased $228.9 million, or 15.0%, for the nine months ended September 30, 2021, compared to $1.528 billion for the same period in 2020.
Private wealth and trust assets under management and administration increased by $445.2 million, or 26.4% annualized, to $2.694 billion at September 30, 2021, compared to $2.249 billion at December 31, 2020.

COVID-19 Update
Paycheck Protection Program
On December 27, 2020, the Consolidated Appropriations Act, 2021 (“CAA”) was signed into law. The CAA is a $2.3 trillion spending bill that combines $900 billion in stimulus relief for the COVID-19 pandemic in the United States with a $1.4 trillion omnibus spending bill for the 2021 federal fiscal year and prevented a government shutdown. The CAA allowed for a second draw for certain businesses under the PPP. Like the original program, loan proceeds are available to help fund payroll and group health benefit costs, as well as certain mortgage interest, rent and utilities. In addition, authorized costs now also include COVID-19 related worker protection costs, uninsured property damage costs due to looting or vandalism during 2020 and certain supplier costs and expenses for operations. The CAA also expands benefit costs to include group dental, vision, life and disability benefits. All of these changes are generally retroactive to the original CARES Act, meaning that the changes may be taken into account in processing loan forgiveness with respect to an original PPP loan. The Corporation accepted and processed applications for second draw PPP loans from January 13, 2021 through the application deadline of May 31, 2021..
As of September 30, 2021, the Corporation had $65.9 million in gross PPP loans outstanding and deferred processing fees outstanding of $1.4 million. The processing fees are deferred and recognized over the contractual life of the loan, or accelerated at forgiveness, as an adjustment of yield using the interest method. During the three and nine months ended September 30, 2021, $1.7 million and $6.4 million, respectively, 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, due to the guaranty, management excluded the PPP loans from the allowance for loan and lease losses calculation. Management funded these short-term loans primarily through a combination of excess cash held at the Federal Reserve and from an increase in in-market deposits.
Deferral Requests
The Corporation provided loan modifications deferring payments for certain borrowers impacted by COVID-19 who were current in their payments at the inception of the Corporation’s loan modification program. Excluding gross PPP loans, as of September 30, 2021, the Corporation had five deferred loans outstanding in an aggregate amount of $24.1 million, or 1.2% of gross loans and leases, compared to $27.0 million, or 1.4% of gross loans and leases as of December 31, 2020. Of the $24.1 million of deferred loans outstanding, $23.5 million relates to three hospitality credits which received principal payment deferrals and are accruing and current on interest payments. Management believes there will be no losses associated with these three credits.
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The following tables represent a breakdown of the deferred loan balances by industry segment and collateral type:
As of
September 30, 2021
Collateral Type
Industries Description Balance Real Estate Non Real Estate
(In Thousands)
Accommodation and Food Services $ 23,521  $ 23,521  $ — 
Manufacturing 428  —  428 
Retail Trade 115  —  115 
Total deferred loan balances $ 24,064  $ 23,521  $ 543 
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
September 30, 2021
Category
I II III IV Total
(Dollars in Thousands)
Total deferred loan balances $ —  $ —  $ 24,064  $ —  $ 24,064 
% of Total —  % —  % 100.0  % —  % 100.0  %
As of
December 31, 2020
Category
I II III IV Total
(Dollars in Thousands)
Total deferred loan balances $ 13,466  $ 13,448  $ 58  $ 38  $ 27,010 
% of Total 49.9  % 49.8  % 0.2  % 0.1  % 100.0  %
Exposure to Stressed Industries
    Certain industries have been and are expected to be particularly impacted by social distancing, quarantines, and the economic impact of the COVID-19 pandemic, such as the following:
As of
September 30, 2021 December 31, 2020
Industries: Balance
% Gross Loans and Leases (1)
Balance
% Gross Loans and Leases (1)
(Dollars in Thousands)
Retail (2) (3)
$ 76,635  3.7  % $ 62,719  3.3  %
Hospitality
77,286  3.7  % 80,832  4.2  %
Entertainment
13,533  0.7  % 14,208  0.7  %
Restaurants & food service
22,393  1.1  % 24,854  1.3  %
Total outstanding exposure
$ 189,847  9.2  % $ 182,613  9.5  %
(1)Excluding net PPP loans.
(2)Includes $39.6 million and $48.9 million in loans secured by commercial real estate as of September 30, 2021 and December 31, 2020, respectively.
(3)Includes $23.2 million and $7.7 million in fully collateralized asset-based loans as of September 30, 2021 and December 31, 2020, respectively.

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    As of September 30, 2021, the Corporation had no meaningful direct exposure to the energy sector, airline industry or retail consumer, and does not participate in Shared National Credits.
    Because of the 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 the future effect of the ongoing pandemic on the Corporation’s loan portfolio.

Results of Operations
Top Line Revenue
    Top line revenue, comprised of net interest income and non-interest income, increased 8.5% for the three months ended September 30, 2021 compared to the same period in 2020 primarily due to a $2.6 million, or 14.0%, increase in net interest income. The increase in net interest income was driven by an increase in average loans and leases receivable, excluding PPP loans, and loan fees in lieu of interest. Top line revenue increased 12.8% for the nine months ended September 30, 2021 compared to the same period in 2020 primarily due to higher net interest income driven by an increase in average loans and leases receivable and loan fees in lieu of interest. Non-interest income for the nine months ended increased due to stronger gains on the sale of SBA loans and private wealth fee income, which was partially offset by a decrease in swap fees from our commercial loan interest rate swap program.
    The components of top line revenue were as follows:
  For the Three Months Ended September 30, For the Nine Months Ended September 30,
  2021 2020 $ Change % Change 2021 2020 $ Change % Change
  (Dollars in Thousands)
Net interest income $ 21,223  $ 18,621  $ 2,602  14.0  % $ 63,738  $ 54,558  $ 9,180  16.8  %
Non-interest income 7,015  7,408  (393) (5.3) 20,531  20,141  390  1.9 
Top line revenue $ 28,238  $ 26,029  $ 2,209  8.5  $ 84,269  $ 74,699  $ 9,570  12.8 
Annualized Return on Average Assets and Annualized Return on Average Equity
    ROAA for the three and nine months ended September 30, 2021 increased to 1.41% and 1.39%, compared to 0.68% and 0.62% for the three and nine months ended September 30, 2020. The increase in ROAA was primarily due to a decrease in provision for loan and lease losses related to two large loan recoveries received in January and September 2021 combined with continued credit quality improvement following significant reserve build during the COVID-19 pandemic. ROAA also benefited from an increase in fees in lieu of interest, strong gains on sale of SBA loans, and consistently strong and growing private wealth fee income. The increase in profitability was partially offset by a decrease in commercial loan interest rate swap fee income and increase in non-interest expense. We consider ROAA a critical metric to measure the profitability of our organization and how efficiently our assets are deployed. ROAA also allows us to better benchmark our profitability to our peers without the need to consider different degrees of leverage which can ultimately influence return on equity measures.
    ROAE for the three and nine months ended September 30, 2021 was 16.39% and 16.63%, compared to 8.58% and 7.49% for the three and nine months ended September 30, 2020. The reasons for the increase 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 and Pre-Tax, Pre-Provision Adjusted Earnings
    Efficiency ratio is a non-GAAP measure representing operating expense, which is non-interest expense excluding the effects of the SBA recourse benefit or provision, impairment of tax credit investments, net gains or 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 net gains or losses on securities, if any. Pre-tax, pre-provision adjusted earnings is defined as operating revenue less operating expense. In the judgment of the Corporation’s management, the adjustments made to non-interest expense and non-interest income allow investors and analysts to better assess the Corporation’s operating expenses in relation to its core operating revenue by removing the volatility associated with certain one-time items and other discrete items.
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    The efficiency ratio was 65.68% and 64.02% for the three and nine months ended September 30, 2021, compared to 64.16% and 64.29% for the three and nine months ended September 30, 2020. Operating expense growth exceeded operating revenue growth for the three months ended September 30, 2021 compared to the same period in 2020 primarily due to a $1.5 million, or 12.6%, increase in compensation principally driven by increased headcount and incentive compensation. Operating revenue growth outpaced the growth in operating expense for the nine months ended September 30, 2021 compared to the same period in 2020, resulting in positive operating leverage. This improvement was attributed to an increase in net interest income driven by a 11.6% increase in average loans and leases receivable and a $4.9 million increase in fees in lieu of interest. The increase in operating revenue was partially offset by a $5.6 million, or 16.5%, increase in compensation expense. Excluding the non-recurring impact of PPP loan fee income and interest income, we believe we will generate positive operating leverage annually and progress towards enhancing our long-term efficiency ratio at a measured pace as we focus on strategic initiatives directed toward revenue growth and operating efficiency through the use of technology. These initiatives include efforts to expand our specialized lending commercial banking business lines, increase our commercial banking market share, and scale our private wealth management business in our less mature commercial banking markets.
    We believe the efficiency ratio and pre-tax, pre-provision adjusted earnings allow 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 and pre-tax, pre-provision adjusted earnings also allow 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 and pre-tax, pre-provision adjusted earnings to its most comparable GAAP measure.
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    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 September 30, For the Nine Months Ended September 30,
2021 2020 $ Change % Change 2021 2020 $ Change % Change
(Dollars in Thousands)
Total non-interest expense $ 18,490  $ 16,758  $ 1,732  10.3  % $ 54,003  $ 51,245  $ 2,758  5.4  %
Less:
Net loss (gain) on foreclosed properties (121) 127  NM 329  (322) (97.9)
Amortization of other intangible assets
(2) (22.2) 23  27  (4) (14.8)
SBA recourse (benefit) provision (69) 57  (126) NM 45  53  (8) (15.1)
Tax credit investment impairment —  113  (113) NM —  2,066  (2,066) NM
Loss on early extinguishment of debt
—  —  —  NM —  744  (744) NM
Total operating expense $ 18,546  $ 16,700  $ 1,846  11.1  $ 53,928  $ 48,026  $ 5,902  12.3 
Net interest income 21,223  18,621  2,602  14.0  $ 63,738  $ 54,558  $ 9,180  16.8 
Total non-interest income 7,015  7,408  (393) (5.3) 20,531  20,141  390  1.9 
Less:
Net gain (loss) on sale of securities —  —  —  NM 29  (4) 33  NM
Adjusted non-interest income 7,015  7,408  (393) (5.3) $ 20,502  $ 20,145  $ 357  1.8 
Total operating revenue $ 28,238  $ 26,029  $ 2,209  8.5  $ 84,240  $ 74,703  $ 9,537  12.8 
Efficiency ratio 65.68  % 64.16  % 64.02  % 64.29  %
Pre-tax, pre-provision adjusted earnings $ 9,692  $ 9,329  $ 363  3.9  $ 30,312  $ 26,677  $ 3,635  13.6 
Average total assets 2,608,198  2,540,735  67,463  2.7  2,602,347  2,357,792  244,555  10.4 
Pre-tax, pre-provision adjusted return on average assets 1.49  % 1.47  % 1.55  % 1.51  %
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 nine months ended September 30, 2021 compared to the same period in 2020. The change in net interest income attributable to changes in rate and volume (changes in rate multiplied by changes in volume) has been allocated to the rate and volume changes in proportion to the relationship of the absolute dollar amounts of the change in each.
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Increase (Decrease) for the Three Months Ended September 30, Increase (Decrease) for the Nine Months Ended September 30,
  2021 Compared to 2020 2021 Compared to 2020
Rate Volume Net Rate Volume Net
  (In Thousands)
Interest-earning assets      
Commercial real estate and other mortgage loans(1)
$ (254) $ 1,004  $ 750  $ (4,583) $ 4,975  $ 392 
Commercial and industrial loans(1)
2,382  (1,256) 1,126  2,252  2,169  4,421 
Direct financing leases(1)
30  (81) (51) 124  (212) (88)
Consumer and other loans(1)
(24) 41  17  (101) 207  106 
Total loans and leases receivable 2,134  (292) 1,842  (2,308) 7,139  4,831 
Mortgage-related securities (113) (61) (174) (576) (275) (851)
Other investment securities (26) 51  25  (78) 191  113 
FHLB and FRB Stock —  (108) 113 
Short-term investments 36  39  (153) 67  (86)
Total net change in income on interest-earning assets
1,998  (260) 1,738  (3,223) 7,235  4,012 
Interest-bearing liabilities
Transaction accounts (42) 34  (8) (821) 373  (448)
Money market accounts (40) 28  (12) (1,787) 94  (1,693)
Certificates of deposit (224) (218) (442) (706) (824) (1,530)
Wholesale deposits (134) (193) (327) (1,289) 93  (1,196)
Total deposits (440) (349) (789) (4,603) (264) (4,867)
FHLB advances (155) 27  (128) (578) 141  (437)
Federal reserve PPP lending facility —  (26) (26) —  (44) (44)
Other borrowings (37) 116  79  (87) 270  183 
Junior subordinated notes —  —  —  (4) (3)
Total net change in expense on interest-bearing liabilities
(632) (232) (864) (5,272) 104  (5,168)
Net change in net interest income $ 2,630  $ (28) $ 2,602  $ 2,049  $ 7,131  $ 9,180 
(1)The average balances of loans and leases include non-accrual loans and leases and loans held for sale.


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    The tables 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 nine months ended September 30, 2021 and 2020. The average balances are derived from average daily balances.
  For the Three Months Ended September 30,
  2021 2020
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)
$ 1,388,236  $ 13,090  3.77  % $ 1,282,132  $ 12,340  3.85  %
Commercial and industrial loans(1)
680,563  9,259  5.44  791,909  8,133  4.11 
Direct financing leases(1)
18,611  207  4.45  26,129  258  3.95 
Consumer and other loans(1)
43,689  391  3.58  39,269  374  3.81 
Total loans and leases receivable(1)
2,131,099  22,947  4.31  2,139,439  21,105  3.95 
Mortgage-related securities(2)
154,372  659  1.71  167,326  833  1.99 
Other investment securities(3)
45,196  196  1.73  34,004  171  2.01 
FHLB and FRB stock 13,279  167  5.03  12,835  161  5.02 
Short-term investments 116,621  45  0.15  21,287  0.11 
Total interest-earning assets 2,460,567  24,014  3.90  2,374,891  22,276  3.75 
Non-interest-earning assets 147,631      165,844     
Total assets $ 2,608,198      $ 2,540,735     
Interest-bearing liabilities            
Transaction accounts $ 509,089  251  0.20  $ 445,687  259  0.23 
Money market accounts 703,460  306  0.17  642,881  318  0.20 
Certificates of deposit 42,370  71  0.67  110,891  513  1.85 
Wholesale deposits 89,135  206  0.92  160,067  533  1.33 
Total interest-bearing deposits 1,344,054  834  0.25  1,359,526  1,623  0.48 
FHLB advances 381,061  1,228  1.29  379,915  1,356  1.43 
Federal reserve PPPLF —  —  —  29,605  26  0.35 
Other borrowings 32,630  449  5.50  24,403  370  6.06 
Junior subordinated notes 10,070  280  11.12  10,056  280  11.14 
Total interest-bearing liabilities 1,767,815  2,791  0.63  1,803,505  3,655  0.81 
Non-interest-bearing demand deposit accounts
556,029      445,245     
Other non-interest-bearing liabilities 59,865      91,810     
Total liabilities 2,383,709      2,340,560     
Stockholders’ equity 224,489      200,175     
Total liabilities and stockholders’ equity
$ 2,608,198      $ 2,540,735     
Net interest income   $ 21,223      $ 18,621   
Interest rate spread     3.27  %     2.94  %
Net interest-earning assets $ 692,752      $ 571,386     
Net interest margin     3.45  %     3.14  %
Average interest-earning assets to average interest-bearing liabilities
139.19  %     131.68  %    
Return on average assets(4)
1.41      0.68     
Return on average equity(4)
16.39      8.58     
Average equity to average assets 8.61      7.88     
Non-interest expense to average assets(4)
2.84      2.64     
(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 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.
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  For the Nine Months Ended September 30,
  2021 2020
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)
$ 1,377,302  $ 38,704  3.75  % $ 1,209,810  $ 38,312  4.22  %
Commercial and industrial loans(1)
736,623  28,759  5.21  678,650  24,338  4.78 
Direct financing leases(1)
20,242  673  4.43  27,065  761  3.75 
Consumer and other loans(1)
44,780  1,197  3.56  37,260  1,091  3.90 
Total loans and leases receivable(1)
2,178,947  69,333  4.24  1,952,785  64,502  4.40 
Mortgage-related securities(2)
155,617  1,955  1.67  173,985  2,806  2.15 
Other investment securities(3)
42,992  569  1.76  29,177  456  2.08 
FHLB and FRB stock 13,308  496  4.97  10,558  491  6.20 
Short-term investments 65,769  67  0.14  39,293  153  0.52 
Total interest-earning assets 2,456,633  72,420  3.93  2,205,798  68,408  4.13 
Non-interest-earning assets 145,714  151,994 
Total assets $ 2,602,347  $ 2,357,792 
Interest-bearing liabilities
Transaction accounts $ 509,709  749  0.20  $ 362,326  1,197  0.44 
Money market accounts 674,858  862  0.17  649,999  2,555  0.52 
Certificates of deposit 48,540  360  0.99  122,781  1,890  2.05 
Wholesale deposits 139,205  825  0.79  132,811  2,021  2.03 
Total interest-bearing deposits 1,372,312  2,796  0.27  1,267,917  7,663  0.81 
FHLB advances 384,581  3,761  1.30  371,738  4,198  1.51 
Federal reserve PPPLF —  —  —  16,855  44  0.35 
Other borrowings 30,811  1,293  5.60  24,490  1,110  6.04 
Junior subordinated notes 10,066  832  11.02  10,052  835  11.07 
Total interest-bearing liabilities 1,797,770  8,682  0.64  1,691,052  13,850  1.09 
Non-interest-bearing demand deposit accounts
523,368  392,455 
Other non-interest-bearing liabilities 63,366  80,270 
Total liabilities 2,384,504  2,163,777 
Stockholders’ equity 217,843  194,015 
Total liabilities and stockholders’ equity
$ 2,602,347  $ 2,357,792 
Net interest income $ 63,738  $ 54,558 
Interest rate spread 3.29  % 3.04  %
Net interest-earning assets $ 658,863  $ 514,746 
Net interest margin 3.46  % 3.30  %
Average interest-earning assets to average interest-bearing liabilities
136.65  % 130.44  %
Return on average assets(4)
1.39  0.62 
Return on average equity(4)
16.63  7.49 
Average equity to average assets 8.37      8.23     
Non-interest expense to average assets(4)
2.77      2.90     
(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 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.
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Comparison of Net Interest Income for the Three and Nine Months Ended September 30, 2021 and 2020

    Net interest income increased $2.6 million, or 14.0%, during the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The increase in net interest income reflected an increase in average gross loans and leases excluding PPP loans, an increase in fees in lieu of interest, and a decrease in interest expense, partially offset by a reduction in the yield on average interest-earning assets excluding PPP loan fees. Fees in lieu of interest, which can vary from quarter to quarter, totaled $2.8 million for the three months ended September 30, 2021, compared to $1.5 million for the same period in 2020. Excluding fees in lieu of interest and interest income from PPP loans, net interest income increased $1.9 million, or 11.4%. Average gross loans and leases for the three months ended September 30, 2021 decreased $8.3 million, or 0.4%, compared to the three months ended September 30, 2020. Excluding net PPP loans, average gross loans and leases for the three months ended September 30, 2021 increased $227.2 million, or 12.5%, compared to the three months ended September 30, 2020. Net interest income increased $9.2 million, or 16.8%, during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The reasons for the increase in net income for the nine months ended September 30, 2021 are consistent with the explanations discussed above with respect to the three months ended September 30, 2021. Fees in lieu of interest totaled $9.5 million for the nine months ended September 30, 2021, compared to $4.6 million for the same period in 2020. Excluding fees in lieu of interest and interest income from PPP loans, net interest income increased $4.3 million, or 8.9%. Average gross loans and leases for the nine months ended September 30, 2021 increased $226.2 million, or 11.6%, compared to the nine months ended September 30, 2020. Excluding net PPP loans, average gross loans and leases for the nine months ended September 30, 2021 increased $232.9 million, or 13.2%, compared to the nine months ended September 30, 2020.
    The yield on average loans and leases for the three and nine months ended September 30, 2021 was 4.31% and 4.24%, respectively, compared to 3.95% and 4.40% for the three and nine months ended September 30, 2020, respectively. Excluding the impact of fees in lieu of interest and PPP loan interest income, the yield on average loans and leases excluding net PPP loans for the three and nine months ended September 30, 2021 was 3.89% and 3.91%, respectively, compared to 4.13% and 4.43% for the three and nine months ended September 30, 2020, respectively. Similarly, the yield on average interest-earning assets for the three and nine months ended September 30, 2021 measured 3.90% and 3.93%, respectively, compared to 3.75% and 4.13% three and nine months ended September 30, 2020, respectively. Excluding fees in lieu of interest and PPP loan interest income, the yield on average interest-earning assets excluding net PPP loans for the three and nine months ended September 30, 2021 was 3.53% and 3.61%, respectively, compared to 3.89% and 4.13% for the three and nine months ended September 30, 2020, respectively. The decline in yields for both periods of comparison was primarily due to the decrease in LIBOR and Prime rates and related impact on variable-rate loans, in addition to the renewal of fixed-rate loans and reinvestment of cash flows from the securities portfolio at historically low interest rates.
    The average rate paid on total interest-bearing liabilities for the three and nine months ended September 30, 2021 decreased to 0.63% and 0.64% compared to 0.81% and 1.09% for the three and nine months ended September 30, 2020, respectively. Total interest-bearing liabilities include interest-bearing deposits, federal funds purchased, FHLB advances, subordinated and junior subordinated notes payable, and other borrowings. The average rate paid declined as the Corporation decreased deposit rates in response to the Federal Open Market Committee’s (“FOMC”) decision to lower the target federal funds rate 150 basis points from January 2020 to March 2020. For the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, the average target federal funds rate decreased 39 basis points.    
Consistent with the Corporation’s longstanding funding strategy to manage interest rate risk and use the most efficient and cost effective source of wholesale funds, a combination of fixed rate wholesale deposits and fixed rate FHLB advances are used at various maturity terms to meet the Corporation’s funding needs. Average FHLB advances for the three months ended September 30, 2021 increased $1.1 million to $381.1 million at an average rate paid of 1.29%, compared to $379.9 million at an average rate paid of 1.43% for the three months ended September 30, 2020. Average FHLB advances for the nine months ended September 30, 2021 increased $12.8 million to $384.6 million at an average rate paid of 1.30%, compared to $371.7 million at an average rate paid of 1.51% for the nine months ended September 30, 2020. As of September 30, 2021, the weighted average original maturity of our FHLB term advances was 6.2 years, compared to 5.1 years as of September 30, 2020. Average wholesale deposits, consisting of brokered certificates of deposit, deposits gathered from internet listing services, and non-reciprocal interest bearing transaction accounts, for the three months ended September 30, 2021 decreased $70.9 million to $89.1 million at an average rate paid of 0.92%, compared to $160.1 million at an average rate paid of 1.33% for the same period in 2020. The decrease in wholesale deposits was primarily due to voluntary reduction of non-maturity brokered deposits given current levels of excess liquidity. Average wholesale deposits for the nine months ended September 30, 2021 increased $6.4 million to $139.2 million at an average rate paid of 0.79%, compared to $132.8 million at an average rate paid of 2.03% for the same period in 2020. As of September 30, 2021, the weighted average original maturity of our termed wholesale deposits was 3.7 years, compared to 4.3 years as of September 30, 2020. The rate paid on average wholesale funding
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is greater than the cost of in-market deposits and changes more gradually because the portfolio includes longer original maturities as the Corporation match-funds its longer-term fixed rate loans to mitigate interest rates risk.
                Net interest margin was 3.45% and 3.46% for the three and nine months ended September 30, 2021, respectively, compared to 3.14% and 3.30% for the three and nine months ended September 30, 2020, respectively. Excluding fees in lieu of interest, PPP loan interest income, Federal Reserve interest income, and FHLB dividends, adjusted net interest margin measured 3.22% and 3.21% for the three and nine months ended September 30, 2021, respectively, compared to 3.24% and 3.29% for the three and nine months ended September 30, 2020, respectively. The decrease in adjusted net interest margin for both periods of comparison was primarily due to the decrease in average yield on loans and leases receivable and investment securities, partially offset by a decrease in the average rate paid on in-market deposits and wholesale funding.
    Management believes its success in growing in-market deposits, disciplined loan pricing, and increased production in existing higher-yielding specialized lending commercial banking products will allow the Corporation to achieve a net interest margin of at least 3.50%, on average, over the long-term. 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. Given the Corporation’s excess liquidity and the current interest rate environment, in the near-team management believes net interest margin will be slightly less than the long-term target of 3.50%.
Despite an uncertain rate environment, management expects to effectively manage the Corporation’s liability structure in both term and rate. Further, we expect to attract new in-market deposit relationships which we believe will contribute to our ability to maintain an appropriate cost of funds. In-market deposits, comprised of all transaction accounts, money market accounts, and non-wholesale deposits, increased $146.6 million, or 11.6% annualized, to $1.830 billion at September 30, 2021, compared to $1.683 billion at December 31, 2020. Average in-market deposits increased $228.9 million, or 15.0%, to $1.756 billion for the nine months ended September 30, 2021, compared to $1.528 billion for the nine months ended September 30, 2020. This significant increase in deposits was due to successful business development efforts combined with excess liquidity resulting from our clients’ participation in the PPP.
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 long-term impact of COVID-19 on the economy is unknown, however, economic conditions have improved steadily in 2021 following the vaccine rollout and the termination of various pandemic safety protocols by states and businesses. While the outbreak did have a temporary adverse impact on certain industries the Corporation serves, including retail, hospitality, entertainment, and restaurants and food services, management believes the long-term impact it may have on the Corporation’s loan portfolio will be limited. Additional detail about certain exposure to stressed industries is included in the section titled COVID-19 Update, above.
    The Corporation recognized a $2.3 million and $5.3 million provision benefit for the three and nine months ended September 30, 2021, respectively, compared to provision expense of $3.8 million and $12.5 million for the three and nine months ended September 30, 2020, respectively. The provision benefit for the three months ended September 30, 2021 was primarily due to a net recovery of $1.3 million, a $923,000 reduction in the general reserve from improving historical loss rates, and a $451,000 decrease in specific reserves. These decreases were partially offset by a $426,000 increase in the general reserve due to loan growth. The provision benefit for the nine months ended September 30, 2021 was primarily due to a net recovery of $1.5 million, a $3.6 million reduction in the general reserve from improving historical loss rates and a $2.1 million decrease in specific reserves. These decreases were partially offset by a $1.5 million increase in the general reserve due to loan growth.
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The following table shows the components of the provision for loan and lease losses for the three and nine months ended September 30, 2021 compared to the three and six months ended September 30, 2020.
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2021 2020 2021 2020
(In Thousands)
Change in general reserve due to subjective factor changes $ (51) $ (766) $ 379  $ 4,697 
Change in general reserve due to historical loss factor changes (923) (16) (3,594) (380)
Charge-offs 364  505  3,402  1,454 
Recoveries (1,634) (23) (4,852) (264)
Change in specific reserves on impaired loans, net (451) 2,974  (2,111) 5,533 
Change due to loan growth, net 426  1,161  1,481  1,447 
Total provision for loan and lease losses $ (2,269) $ 3,835  $ (5,295) $ 12,487 
    The legacy on-balance sheet SBA portfolio, defined as SBA 7(a) and Express loans originated in 2016 and prior, was a source of elevated non-performing assets and charge-offs. Additional information on our legacy SBA portfolio is as follows:
As of
September 30,
2021
June 30,
2021
September 30,
2020
(In Thousands)
Performing loans:
Off-balance sheet loans
$ 13,340  $ 14,161  $ 26,017 
On-balance sheet loans
3,905  6,836  15,175 
Gross loans
17,245  20,997  41,192 
Non-performing loans:
Off-balance sheet loans
3,689  3,943  2,574 
On-balance sheet loans
624  1,800  9,561 
Gross loans
4,313  5,743  12,135 
Total loans:
Off-balance sheet loans
17,029  18,104  28,591 
On-balance sheet loans
4,529  8,636  24,736 
Gross loans
$ 21,558  $ 26,740  $ 53,327 
    The addition of specific reserves on impaired loans represents new specific reserves established when collateral shortfalls or government guaranty deficiencies are present, while conversely the release of specific reserves represents 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 the future effect of the ongoing pandemic on the Corporation’s loan portfolio.
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Comparison of Non-Interest Income for the Three and Nine Months Ended September 30, 2021 and 2020
Non-Interest Income
    Non-interest income decreased $393,000, or 5.3%, to $7.0 million for the three months ended September 30, 2021 compared to $7.4 million for the same period in 2020. Non-interest income increased $390,000, or 1.9%, to $20.5 million for the nine months ended September 30, 2021 compared to $20.1 million for the same period in 2020. Management continues to focus on revenue growth from multiple non-interest income sources in order to maintain a diversified revenue stream. Total non-interest income accounted for 24.8% and 24.4% of total revenues for the three and nine months ended September 30, 2021, compared to 28.5% and 27.0% for the three and nine months ended September 30, 2020. The decline in fee revenue compared to total revenue is primarily due to an increase in net interest income and a reduction in commercial loan interest rate swap fee income. Management believes the continued gradual expansion of its SBA lending program and the geographic expansion of its private wealth management business in bank markets outside of South Central Wisconsin will allow the Corporation to achieve a strategic target of 25% over the long-term.
    The components of non-interest income were as follows:
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2021 2020 $ Change % Change 2021 2020 $ Change % Change
(Dollars in Thousands)
Private wealth management services fee income
$ 2,759  $ 2,167  $ 592  27.3  % $ 7,910  $ 6,402  $ 1,508  23.6  %
Gain on sale of SBA loans 721  760  (39) (5.1) 3,002  1,598  1,404  87.9 
Service charges on deposits 956  881  75  8.5  2,814  2,527  287  11.4 
Loan fees 713  478  235  49.2  1,828  1,414  414  29.3 
Increase in cash surrender value of bank-owned life insurance
357  365  (8) (2.2) 1,056  1,037  19  1.8 
Net gain (loss) on sale of securities —  —  —  NM 29  (4) 33  NM
Swap fees —  2,446  (2,446) (100.0) 684  5,782  (5,098) (88.2)
Other non-interest income 1,509  311  1,198  385.2  3,208  1,385  1,823  131.6 
Total non-interest income $ 7,015  $ 7,408  $ (393) (5.3) $ 20,531  $ 20,141  $ 390  1.9 
Fee income ratio(1)
24.8  % 28.5  % 24.4  % 27.0  %
(1)     Fee income ratio is fee income, per the above table, divided by top line revenue (defined as net interest income plus non-interest income).
    Private wealth management service fees increased $592,000, or 27.3%, and $1.5 million, or 23.6%, for the three and nine months ended September 30, 2021, respectively, compared to the three and nine months ended September 30, 2020. Private wealth management fee income is primarily driven by the amount of assets under management and administration, as well as the mix of business at different fee structures, and can be positively or negatively influenced by the timing and magnitude of volatility within the capital markets. This increase was driven by growth in assets under management and administration attributable to both new client relationships and increased equity market values. As of September 30, 2021, private wealth and trust assets under management and administration totaled a record $2.694 billion, increasing $445.2 million, or 26.4% annualized, compared to $2.249 billion as of December 31, 2020 and $676.6 million, or 33.5%, compared to $2.018 billion as of September 30, 2020.
    No commercial loan interest rate swap fee income was recognized for the three months ended September 30, 2021, compared to $2.4 million for the same period in 2020. Commercial loan interest rate swap fee income was $684,000 for the nine months ended September 30, 2021, compared to $5.8 million for the nine months ended September 30, 2020. We originate commercial real estate loans in which we offer clients a floating rate and an interest rate swap. The client’s swap is then offset with a counter-party dealer. The execution of these transactions generates swap fee income. The aggregate amortizing notional value of interest rate swaps with various borrowers was $634.0 million as of September 30, 2021, compared to $577.9 million as of September 30, 2020. Interest rate swaps can be an attractive product for our commercial borrowers, although associated fee income can be variable from period to period based on client demand and the interest rate environment in any given quarter. Subsequent to September 30, 2021,we completed two commercial loan interest rate swap transactions which generated swap fees totaling $684,000.
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    Gains on sale of SBA loans for the three months ended September 30, 2021 decreased $39,000, or 5.1%, compared to the same period in 2020. We expect this revenue stream to return to levels consistent with the first half of the year in the coming quarters and continue to believe gains on sale of traditional SBA loans (i.e., SBA loans unrelated to PPP loans), while variable based on timing of closings, will continue to increase annually at a measured pace. Gain on sale of SBA loans increased $1.4 million, or 87.9%, for the nine months ended September 30, 2021 compared to the same period in 2020.
Loans fees increased $235,000, or 49.2%, and $414,000, or 29.3%, for the three and nine months ended September 30, 2021, respectively, compared to the three and nine months ended September 30, 2020. The increase in both periods of comparison is primarily due to a full year of floorplan financing curtailment fees.
    Other non-interest income increased $1.2 million, or 385.2%, and $1.8 million, or 131.6%, for the three and nine months ended September 30, 2021, respectively, compared to the three and nine months ended September 30, 2020. The increase in both periods of comparison was primarily due to an increase in returns from the Corporation’s investments in mezzanine funds and an increase in bank consulting services fee income.
Comparison of Non-Interest Expense for the Three and Nine Months Ended September 30, 2021 and 2020
Non-Interest Expense    
Non-interest expense for the three months ended September 30, 2021 increased by $1.7 million, or 10.3%, to $18.5 million compared to $16.8 million for the same period in 2020. Operating expense, which excludes certain one-time and discrete items as defined in the Efficiency Ratio table above, increased $1.8 million, or 11.1%, to $18.5 million for the three months ended September 30, 2021 compared to $16.7 million for the same period in 2020. Non-interest expense for the nine months ended September 30, 2021 increased by $2.8 million, or 5.4%, to $54.0 million compared to $51.2 million for the same period in 2020. Operating expense increased $5.9 million, or 12.3%, to $53.9 million for the nine months ended September 30, 2021 compared to $48.0 million for the same period in 2020. The increase in operating expense in both periods of comparison was primarily due to an increase in compensation.    
The components of non-interest expense were as follows:
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2021 2020 $ Change % Change 2021 2020 $ Change % Change
(Dollars in Thousands)
Compensation
$ 13,351  $ 11,857  $ 1,494  12.6  % $ 39,263  $ 33,705  $ 5,558  16.5  %
Occupancy 544  570  (26) (4.6) 1,628  1,696  (68) (4.0)
Professional fees
1,024  943  81  8.6  2,803  2,621  182  6.9 
Data processing 746  679  67  9.9  2,315  2,066  249  12.1 
Marketing 572  356  216  60.7  1,474  1,169  305  26.1 
Equipment
260  310  (50) (16.1) 767  905  (138) (15.2)
Computer software 999  1,017  (18) (1.8) 3,244  2,873  371  12.9 
FDIC insurance 291  312  (21) (6.7) 933  760  173  22.8 
Collateral liquidation costs 47  45  4.4  224  281  (57) (20.3)
Net loss (gain) on foreclosed properties (121) 127  NM 329  (322) (97.9)
Impairment on tax credit investments —  113  (113) NM —  2,066  (2,066) (100.0)
SBA recourse (benefit) provision (69) 57  (126) NM 45  53  (8) NM
Loss on early extinguishment of debt
—  —  —  NM —  744  (744) NM
Other non-interest expense
719  620  99  16.0  1,300  1,977  (677) (34.2)
Total non-interest expense $ 18,490  $ 16,758  $ 1,732  10.3  $ 54,003  $ 51,245  $ 2,758  5.4 
Total operating expense(1)
$ 18,546  $ 16,700  $ 1,846  11.1  $ 53,928  $ 48,026  $ 5,902  12.3 
Full-time equivalent employees
307  300  307  300 

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(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.    
    Compensation expense for the three and nine months ended September 30, 2021 was $13.4 million, an increase of $1.5 million, or 12.6%, and $39.3 million, an increase of $5.6 million, or 16.5%, respectively, compared to the three and nine months ended September 30, 2020. The increase in both periods of comparison reflects new hires, annual merit increases, growth in employee benefit costs, and an increase in the expected payout on annual corporate and individual incentive compensation plans. The annual corporate bonus and individual incentive compensation plans for the three and nine months ended September 30, 2021 totaled $2.6 million and $6.7 million, respectively, due to strong Bank performance driven by effective business development efforts and continued improvement in credit, compared to $1.7 million and $3.9 million for three and nine months ended September 30, 2020, respectively. Average full-time equivalent employees for the nine months ended September 30, 2021 increased to 309, up 7.7%, compared to 287 for the nine months ended September 30, 2020. We expect to continue investing in talent, both in the form of additional business development and operational staff, to support our long-term strategic plan.
Data processing expense increased $67,000, or 9.9%, and $249,000, or 12.1%, for the three and nine months ended September 30, 2021, respectively, compared to the three and nine months ended September 30, 2020. The increase in data processing expense was due to the increase in deposit accounts and implementation costs for various client-facing products and functionality. Management expects data processing expense to continue to increase modestly commensurate with the increase in deposit accounts.
Marketing expense increased $216,000, or 60.7%, and $305,000, or 26.1%, for the three and nine months ended September 30, 2021, respectively, compared to the three and nine months ended September 30, 2020. Management expects marketing expense to continue to increase modestly and return to pre-pandemic levels over the next several quarters primarily driven by sponsorships and business development activities.    
Computer software expense decreased $18,000, or 1.8%, and increased $371,000, or 12.9%, for the three and nine months ended September 30, 2021, respectively, compared to the three and nine months ended September 30, 2020. The increase for the nine months ended September 30, 2021 was principally due to investments in and maintenance of technology platforms to improve the client experience and continuing our strategic focus on scaling the Corporation to efficiently execute our growth strategy. Management expects computer software expense growth to moderate in 2022 and beyond and generally increase commensurate with headcount and the related increase in software licensing costs.
    No historic tax credits or related impairment were recognized for the three and nine months ended September 30, 2021. The impairment on tax credit investments for the three and nine months ended September 30, 2020 are related to a new market and historic tax credits. The impairment on tax credits are more than offset by a reduction to income tax expense resulting in a net benefit to earnings in the year the credits are earned. Management intends to continue actively pursuing in-market tax credit opportunities throughout 2022 and beyond.
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.
Other non-interest expense increased $99,000, or 16.0%, and decreased $677,000, or 34.2%, for the three and nine months ended September 30, 2021, respectively, compared to the three and nine months ended September 30, 2020. The increase for the three months ended September 30, 2021 was due to an increase in travel and other general business-related expenses. The decrease for the nine months ended September 30, 2021 was principally due to a reduction in the credit valuation adjustment (“CVA”) related to the commercial loan interest rate swap program and a reduction in the loan servicing valuation adjustment related to the Bank’s SBA portfolio. The CVA represents a change in the market value of the Company’s commercial loan interest rate swaps to estimate potential borrower credit risk within the portfolio. The CVA can vary from period to period based on the size of the portfolio, credit metrics, and the interest rate environment in any given quarter. There was no CVA as of September 30, 2020.
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Income Taxes
    Income tax expense totaled $8.4 million for the nine months ended September 30, 2021 compared to an income tax expense of $73,000 for the nine months ended September 30, 2020. The income tax expense for the nine months ended September 30, 2020 reflects a benefit from 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 effective tax rate, excluding tax credits and other discrete items, for the nine months ended September 30, 2021 was 23.5% compared to 19.3% for the nine months ended September 30, 2020.
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 $16.6 million, or 0.6%, to $2.584 billion as of September 30, 2021 compared to $2.568 billion at December 31, 2020. The increase in total assets was primarily driven by short-term investments and securities, partially offset by a decrease in loans and leases receivable and derivatives.
Short-Term Investments
    Short-term investments increased by $63.1 million to $90.4 million at September 30, 2021 from $27.4 million at December 31, 2020. The increase in short-term investments was primarily due to solid in-market deposit growth and PPP loan forgiveness proceeds. Our short-term investments primarily consist of interest-bearing deposits held at the FRB. We value the safety and soundness provided by the FRB and therefore incorporate short-term investments in our on-balance sheet liquidity program. 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 entitled Liquidity and Capital Resources for further discussion.
Securities
    Total securities, including available-for-sale and held-to-maturity, increased by $5.0 million, or 2.4%, to $215.3 million at September 30, 2021 compared to $210.3 million at December 31, 2020. During the nine months ended September 30, 2021 we recognized unrealized losses of $3.0 million before income taxes through other comprehensive income, compared to gains of $3.9 million for the same period in 2020. As of September 30, 2021 and December 31, 2020, our overall securities portfolio, including available-for-sale securities and held-to-maturity securities, had an estimated weighted-average expected maturity of 5.7 years and 5.0 years, respectively. 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 September 30, 2021.
Loans and Leases Receivable    
    Loans and leases receivable, net of allowance for loan and lease losses, decreased by $18.8 million to $2.099 billion at September 30, 2021 from $2.117 billion at December 31, 2020 which was driven by PPP loan forgiveness, partially offset by commercial loan growth. Loans and leases receivable, net of allowance for loan and lease losses and excluding net PPP loans, increased by $142.1 million, or 10.0% annualized, to $2.034 billion at September 30, 2021 from December 31, 2020.
Excluding net PPP loans, C&I loans increased $109.6 million, or 28.8% annualized, to $616.6 million from $507.0 million at December 31, 2020 primarily due to an increase in asset-based lending, small-ticket equipment financing, and dealer floorplan financing. The majority of our specialized lending commercial banking business lines are early stage and faster
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growing while the more mature business lines, like asset-based lending, have historically experienced counter cyclical growth, growing during and following times of economic stress. Management expects specialized lending volume to continue to increase in 2021 and 2022 following the proactive investments made prior to and during the COVID-19 pandemic. Including net PPP loans, our C&I portfolio decreased $51.3 million to $681.1 million from $732.3 million at December 31, 2020.
Total commercial real estate (“CRE”) loans increased $28.6 million to $1.388 billion, up from $1.359 billion at December 31, 2020. Non-owner occupied CRE and multi-family loans drove CRE loan growth as of September 30, 2021, increasing $74.9 million, and $2.2 million, respectively, from December 31, 2020.
There continues to be a concentration in CRE loans which represented 67.3% and 70.6% of our total loans, excluding net PPP loans, as of September 30, 2021 and December 31, 2020, respectively. As of September 30, 2021, 17.4% of the CRE loans were owner-occupied CRE, compared to 18.7% as of December 31, 2020. 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. Management has elevated its underwriting standards during the COVID-19 pandemic to ensure borrowers have characteristics such as robust liquidity, strong operating performance, and collateral positions. Even with these higher standards, the Corporation has been able to grow loans and deepen banking relationships.
Underwriting of new credit is primarily through approval from a serial sign-off or committee process and is a key component of our operating philosophy. Business development officers have no individual lending authority limits, and thus, a significant portion of our new credit extensions require approval from a loan approval committee regardless of the type of loan or lease, amount of the credit, or the related complexities of each proposal. In addition, we make every reasonable effort to ensure that there is appropriate collateral or a government guarantee at the time of origination to protect our interest in the related loan or lease. To monitor the ongoing credit quality of our loans and leases, each credit is evaluated for risk at the time of origination, subsequent renewal, evaluation of updated financial information from our borrowers, or as other circumstances dictate.
    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 expect our new loan and lease activity to be more than adequate to replace normal amortization, allowing us to continue growing in future years. 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.
Deposits
    As of September 30, 2021, deposits increased by $48.8 million, or 3.5% annualized, to $1.904 billion from $1.856 billion at December 31, 2020 primarily due to a $66.5 million and $87.2 million increase in transaction accounts and money market accounts, respectively, partially offset by a decrease in wholesale deposits and certificates of deposit of $97.9 million and $7.1 million, respectively. The large increase in deposits was primarily due to successful business development efforts and PPP forgiveness proceeds. 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 $1.756 billion for the nine months ended September 30, 2021, up 16.0% annualized, compared to $1.569 billion for the year ended December 31, 2020.
FHLB Advances and Other Borrowings
    As of September 30, 2021, FHLB advances and other borrowings decreased by $25.1 million, or 6.0%, to $394.1 million from $419.2 million at December 31, 2020. 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, as needed, to match-fund fixed rate loans and mitigate interest rate risk. Total bank funding is defined as total deposits plus FHLB advances, and Federal Reserve Discount Window advances.
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As of September 30, 2021 and December 31, 2020, the Corporation had other borrowings of $12.5 million and $920,000 respectively, which consisted of sold loans which were accounted for as a secured borrowing, because they did not qualify for true sale accounting, in addition to borrowings associated with our investment in a community development entity.
    During the second quarter of 2020, the Corporation tested its ability to borrow from the Federal Reserve PPPLF in the event funding was required to support the Banks PPP lending efforts. On April 28, 2020, the Corporation borrowed $29.6 million from the PPPLF at a rate of 0.35%. As of November 2, 2020, the borrowing was paid in full.
    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. 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.
Derivatives
The Corporation’s derivative financial instruments, under which the Corporation is required to either receive cash from or pay cash to counterparties depending on changes in interest rates applied to notional amounts, are carried at fair value on the consolidated balance sheets. We offer interest rate swap products directly to qualified commercial borrowers, originating a floating rate loan and an interest rate swap providing a fixed rate to the borrower. The client’s swap is then offset with a counter-party dealer. The execution of these transactions generates swap fee income. The aggregate amortizing notional value of interest rate swaps with various borrowers increased $4.9 million, or 0.8%, to $634.0 million as of September 30, 2021, compared to $629.1 million as of December 31, 2020. The fair value of these interest rate swaps decreased $20.7 million, or 41.9%, to $28.7 million as of September 30, 2021, compared to $49.4 million as of December 31, 2020. The decline in fair value of the derivative contracts is directly related to the level of interest rates as of September 30, 2021, compared to the maturity term and amortization rates when the derivative contracts were originally executed.
For further information and discussion of our derivatives, see Note 13 — Derivative Financial Instruments of the Consolidated Financial Statements.

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Asset Quality
Impaired Assets
    Total impaired assets consisted of the following at September 30, 2021 and December 31, 2020, respectively:
September 30,
2021
December 31,
2020
  (Dollars in Thousands)
Non-accrual loans and leases    
Commercial real estate:    
Commercial real estate - owner occupied $ 1,109  $ 5,429 
Commercial real estate - non-owner occupied —  3,783 
Land development —  890 
Construction —  — 
Multi-family —  — 
1-4 family 391  250 
Total non-accrual commercial real estate 1,500  10,352 
Commercial and industrial 5,884  16,155 
Direct financing leases, net 49  49 
Consumer and other:    
Home equity and second mortgages —  40 
Other —  21 
Total non-accrual consumer and other loans —  61 
Total non-accrual loans and leases 7,433  26,617 
Foreclosed properties, net 172  34 
Total non-performing assets 7,605  26,651 
Performing troubled debt restructurings 53  46 
Total impaired assets $ 7,658  $ 26,697 
Total non-accrual loans and leases to gross loans and leases 0.35  % 1.24  %
Total non-performing assets to gross loans and leases plus foreclosed properties, net
0.36  1.24 
Total non-performing assets to total assets 0.29  1.04 
Allowance for loan and lease losses to gross loans and leases 1.16  1.33 
Allowance for loan and lease losses to non-accrual loans and leases 331.98  107.15 
    Net PPP loans outstanding as of September 30, 2021 and December 31, 2020, were $64.5 million and $225.3 million, respectively. The following asset quality ratios exclude net PPP loans as they are fully guaranteed by the SBA:
September 30,
2021
December 31,
2020
Total non-accrual loans and leases to gross loans and leases 0.36  % 1.38  %
Total non-performing assets to gross loans and leases plus foreclosed properties, net
0.37  1.38 
Total non-performing assets to total assets 0.30  1.14 
Allowance for loan and lease losses to gross loans and leases 1.20  1.48 
Non-accrual loans decreased $19.2 million, or 72.1%, to $7.4 million at September 30, 2021, compared to $26.6 million at December 31, 2020. The decrease in non-accrual loans was principally due to loan payoffs, loans returning to accrual status, and $3.4 million of charge-offs, of which $2.2 million was from the legacy SBA portfolio. All charge-offs for the nine months ended September 30, 2021 were previously identified impaired loans and unrelated to the economic slowdown from the COVID-19 pandemic. Management does not view these charge-offs as being indicative of any systemic issues across the Corporation’s loan and lease portfolio. The Corporation’s non-accrual loans as a percentage of total gross loans and leases
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measured 0.35% and 1.24% at September 30, 2021 and December 31, 2020, respectively. Non-accrual loans as a percentage of total gross loans and leases, excluding net PPP loans, was 0.36% and 0.96% at September 30, 2021 and December 31, 2020, respectively. As of September 30, 2021 and December 31, 2020, $857,000 and $6.5 million of non-accrual loans and leases were considered troubled debt restructurings, respectively. Please refer to the section titled COVID-19 Update for additional information on credit quality.    
    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 as a percentage of total assets decreased to 0.29% at September 30, 2021 from 1.04% at December 31, 2020. As of September 30, 2021, the payment performance of our loans and leases did not point to any new areas of concern, as approximately 99.8% of the total portfolio was in a current payment status, compared to 99.0% as of December 31, 2020. We also monitor asset quality through our established categories as defined in Note 6 – Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease Losses of the Consolidated Financial Statements. 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 are proactively working with our impaired loan borrowers to find meaningful solutions to difficult situations that are in the best interests of the Bank.
    As of September 30, 2021, as well as in all previous reporting periods, there were no loans over 90 days past due and still accruing interest. Loans and leases greater than 90 days past due are considered impaired and are placed on non-accrual status. Cash received while a loan or a lease is on non-accrual status is generally applied solely against the outstanding principal. If collectability of the contractual principal and interest is not in doubt, payments received may be applied to both interest due on a cash basis and principal.
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    The following represents additional information regarding our impaired loans and leases:
As of and for the Nine Months Ended September 30, As of and for the
Year Ended December 31,
  2021 2020 2020
  (In Thousands)
Impaired loans and leases with no impairment reserves required
$ 4,985  $ 15,557  $ 18,966 
Impaired loans and leases with impairment reserves required
2,501  20,540  7,697 
Total impaired loans and leases 7,486  36,097  26,663 
Less: Impairment reserve (included in allowance for loan and lease losses)
1,570  8,898  3,681 
Net impaired loans and leases $ 5,916  $ 27,199  $ 22,982 
Average impaired loans and leases $ 16,700  $ 24,899  $ 27,703 
Foregone interest income attributable to impaired loans and leases
$ 1,002  $ 2,049  $ 2,794 
Less: Interest income recognized on impaired loans and leases
164  467  636 
Net foregone interest income on impaired loans and leases $ 838  $ 1,582  $ 2,158 
    Non-performing assets also include foreclosed properties. A summary of foreclosed properties activity is as follows:
As of and for the Nine Months Ended September 30, As of and for the
Year Ended December 31,
2021 2020 2020
(In Thousands)
Balance at the beginning of the period $ 34  $ 2,919  $ 2,919 
Transfer of loans and leases to foreclosed properties 145  80  80 
Proceeds from sale of foreclosed properties —  (2,057) (2,582)
Net gain (loss) on sale of foreclosed properties —  34  (20)
Impairment adjustments (7) (363) (363)
Balance at the end of the period $ 172  $ 613  $ 34 
Allowance for Loan and Lease Losses
    The allowance for loan and lease losses decreased $3.8 million, or 13.5%, to $24.7 million as of September 30, 2021 from $28.5 million as of December 31, 2020 . The allowance for loan and lease losses as a percentage of gross loans and leases decreased to 1.16% as of September 30, 2021 from 1.33% as of December 31, 2020 . The allowance for loan and lease losses as a percentage of gross loans and leases, excluding net PPP loans, was 1.20% as of September 30, 2021 compared to 1.48% as of December 31, 2020. The decrease in allowance for loan and lease losses as a percent of gross loans and leases was principally driven by significant commercial real estate loan recoveries, and the related impact it had on our commercial real estate historical loss factors, and the release of specific reserves following loan payoffs and charge-offs. These general and specific reserve releases were partially offset primarily by an increase in general reserve commensurate with loan growth.
    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.
    During the nine months ended September 30, 2021, we recorded net recoveries on impaired loans and leases of $1.5 million, comprised of $3.4 million of charge-offs and $4.9 million of recoveries. While we likely will continue to experience some level of periodic charge-offs in the future, as exit strategies are considered and executed, management believes charge-offs in the foreseeable future will remain at low levels based on total non-accrual loans and leases as a percentage of gross loans and leases of 0.35% at September 30, 2021; which is the Corporation’s lowest level of non-accrual loans since the fourth quarter of 2006. Loans and leases with previously established specific reserves, however, may ultimately result in a charge-off under a variety of scenarios.
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    As of September 30, 2021 and December 31, 2020, our ratio of allowance for loan and lease losses to total non-accrual loans and leases was 331.98% and 107.15%, respectively. This ratio continues to increase due to the significant decline in non-accrual loans and as our remaining non-accrual loan and lease portfolio has a larger proportion of SBA loans when compared to December 31, 2020, which historically carry larger collateral shortfalls when compared to our conventional commercial loans. 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 loss 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, 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 September 30, 2021.
    To determine the level and composition of the allowance for loan and lease losses, we break out the portfolio by segments with similar risk characteristics. First, we evaluate loans and leases for potential impairment classification. We analyze each loan and lease identified as 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. For each segment of loans and leases that has not been individually evaluated, management segregates the Bank’s loss factors into a quantitative general reserve component based on historical loss rates throughout the defined look back period. The quantitative general reserve component also considers an estimate of the historical loss emergence period, which is the period of time between the event that triggers the loss to the charge-off of that loss. The methodology also focuses on evaluation of several qualitative factors for each portfolio category, including but not limited to: management’s ongoing review and grading of the loan and lease portfolios, consideration of delinquency experience, changes in the size of the loan and lease portfolios, existing economic conditions, level of loans and leases subject to more frequent review by management, changes in underlying collateral, concentrations of loans to specific industries, and other qualitative factors that could affect credit losses such as the economic uncertainty related to the COVID-19 pandemic. As of September 30, 2021, the allowance for loan and lease losses included $733,000 in general reserve related to economic uncertainty, compared to $947,000 as of December 31, 2020. Management removed qualitative factors due to COVID-19 uncertainty from the majority of our specialized lending and commercial and industrial portfolios reflecting continued strong performance while maintaining a general reserve on industries previously identified as stressed, specifically hospitality and retail.
    When it is determined that we will not receive our entire contractual principal or the loss is confirmed, we record a charge against the allowance for loan and lease loss reserve to bring the loan or lease to its net realizable value. Many of the impaired loans as of September 30, 2021 are collateral dependent. It is typically part of our process to obtain appraisals on impaired loans and leases that are primarily secured by real estate or equipment at least annually, or more frequently as circumstances warrant. As we have completed new appraisals and/or market evaluations, we have found that in general real estate values have been stable or improved; however, in specific situations current fair values collateralizing certain impaired loans were inadequate to support the entire amount of the outstanding debt. Foreclosure actions may have been initiated on certain of these commercial real estate and other mortgage loans.
    As a result of our review process, we have concluded an appropriate allowance for loan and lease losses for the existing loan and lease portfolio was $24.7 million, or 1.16% of gross loans and leases, at September 30, 2021. However, given ongoing complexities with current workout situations and the uncertainty surrounding future economic conditions, 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. In addition, various federal and state regulatory agencies review the allowance for loan and lease losses. These agencies could require certain loan and lease balances to be classified differently or charged off when their credit evaluations differ from those of management, based on their judgments about information available to them at the time of their examination.

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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 September 30, As of and for the Nine Months Ended September 30,
  2021 2020 2021 2020
  (Dollars in Thousands)
Allowance at beginning of period $ 25,675  $ 27,464  $ 28,521  $ 19,520 
Charge-offs:      
Commercial real estate:      
Commercial real estate — owner occupied (7) —  (11) (27)
Commercial real estate — non-owner occupied
—  —  —  — 
Construction and land development —  —  —  — 
Multi-family —  —  —  — 
1-4 family —  —  (245) — 
Commercial and industrial (356) (505) (3,121) (1,358)
Direct financing leases —  —  —  (56)
Consumer and other:    
Home equity and second mortgages —  —  —  — 
Other (1) —  (25) (13)
Total charge-offs (364) (505) (3,402) (1,454)
Recoveries:      
Commercial real estate:      
Commercial real estate — owner occupied 70  —  295 
Commercial real estate — non-owner occupied
1,431  —  1,431 
Construction and land development —  —  2,078  — 
Multi-family —  —  —  — 
1-4 family —  —  —  — 
Commercial and industrial 128  21  1,041  259 
Direct financing leases —  —  —  — 
Consumer and other:      
Home equity and second mortgages —  —  — 
Other
Total recoveries 1,634  23  4,852  264 
Net recoveries 1,270  (482) 1,450  (1,190)
Provision for loan and lease losses (2,269) 3,835  (5,295) 12,487 
Allowance at end of period $ 24,676  $ 30,817  $ 24,676  $ 30,817 
Annualized net (recoveries) charge-offs as a percent of average gross loans and leases (0.24) % 0.09  % (0.09) % 0.08  %
Annualized net (recoveries) charge-offs as a percent of average gross loans and leases, excluding average net PPP loans (0.25) % 0.11  % (0.10) % 0.09  %


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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 September 30, 2021 were the interest payments due on subordinated and junior subordinated notes. On July 30, 2021, the Bank’s Board of Directors declared a dividend in the aggregate amount of $3.0 million bringing year-to-date dividend declarations to $7.5 million. The capital ratios of the Bank met all applicable regulatory capital adequacy requirements in effect on September 30, 2021, and continue to meet the heightened requirements imposed by Basel III, including the capital conservation buffer that was fully phased-in as of January 1, 2019. The Corporation’s Board 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, and Federal Reserve Discount Window 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.
We view on-balance sheet liquidity as 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 September 30, 2021 and December 31, 2020, our immediate on-balance sheet liquidity was $535.3 million and $640.2 million, respectively. At September 30, 2021 and December 31, 2020, the Bank had $89.9 million and $26.7 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 $432.4 million of outstanding wholesale funds at September 30, 2021, compared to $567.0 million of wholesale funds as of December 31, 2020, which represented 19.1% and 25.2%, respectively, of ending balance total bank funding. Wholesale funds include FHLB advances, brokered certificates of deposit, deposits gathered from reciprocal deposit programs above the general cap, if applicable, and unreciprocated deposits from reciprocal deposit programs. Total bank funding is defined as total deposits plus FHLB 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 $146.6 million, or 11.6% annualized, to $1.830 billion at September 30, 2021 from $1.683 billion at December 31, 2020 as in-market deposit balances increased due to our client’s PPP loan proceeds and successful business development efforts. Our in-market relationships continue to grow; however, deposit balances associated with those relationships will fluctuate. We expect to establish new client relationships and continue marketing efforts aimed at increasing the balances in existing clients’ deposit accounts. 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 certificates of deposit 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. 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 September 30, 2021.
    The Bank was able to access the wholesale funding market as needed at rates and terms comparable to market standards during the year ended September 30, 2021. In the event that there is a disruption in the availability of wholesale funds
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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 September 30, 2021, 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.
The Corporation's capital ratios continued to exceed the highest required regulatory benchmark levels. As of September 30, 2021, total capital to risk-weighted assets was 11.14%, tier 1 capital to risk-weighted assets was 9.14%, tier 1 leverage capital to adjusted average assets was 8.69% and common equity tier 1 capital to risk-weighted assets was 8.73%. In addition, as of September 30, 2021, tangible common equity to tangible assets was 8.28%.
As of September 30, 2021, the Corporation had purchased 157,520 shares of its common stock, since the adoption of its previously disclosed stock repurchase program, at a weighted average price of $26.90 per share, for a total value of $4.3 million. The Corporation had $717,000 of buyback authority remaining under the program as of September 30, 2021.
As previously announced, during the third quarter of 2021, the Corporation’s Board of Directors declared a regular quarterly dividend of $0.18 per share. The dividend was paid on August 19, 2021 to stockholders of record at the close of business on August 6, 2021. Measured against third quarter 2021 diluted earnings per share of $1.07, the dividend represents a 16.8% payout ratio. The Board of Directors routinely considers dividend declarations as part of its normal course of business.
    During the nine months ended September 30, 2021, operating activities resulted in a net cash inflow of $24.8 million, which included net income of $27.2 million, partially offset by a $5.3 million provision for loan and lease loss benefit. Net cash provided by investing activities for the nine months ended September 30, 2021 was $14.5 million primarily due to proceeds received from the sale of securities available for sale. Net cash provided by financing activities was $14.5 million for the nine months ended September 30, 2021 primarily due to a net increase in deposits, partially offset by a net reduction in FHLB advances and cash dividends paid. 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 September 30, 2021, 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, 2020. 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 September 30, 2021.
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
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September 30, 2021 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.

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, 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.


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Item 6. Exhibits
10.1 
10.2 
10.3 
10.4 
10.5 
10.6 
10.7 
10.8 
31.1 
31.2 
32 
101  The following financial information from First Business Financial Services, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020, (ii) Consolidated Statements of Income for the three and nine months ended September 30, 2021 and 2020, (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2021 and 2020, (iv) Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2021 and 2020, (v) Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2021 and 2020, and (vi) the Notes to Unaudited Consolidated Financial Statements
104  The cover page from First Business Financial Services, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 has been formatted in Inline XBRL and contained in Exhibit 101.
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.
 
October 29, 2021 /s/ Corey A. Chambas
  Corey A. Chambas 
  Chief Executive Officer
   
October 29, 2021 /s/ Edward G. Sloane, Jr.
  Edward G. Sloane, Jr.
  Chief Financial Officer
(principal financial officer)

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Exhibit 10.1
FIRST BUSINESS FINANCIAL SERVICES, INC.
2019 EQUITY INCENTIVE PLAN
PERFORMANCE-BASED RESTRICTED STOCK UNIT AWARD AGREEMENT
EXECUTIVE OFFICER

The Participant specified below is hereby granted a performance-based restricted stock unit award (the “Award”) by First Business Financial Services, Inc., a Wisconsin corporation (the “Company”), under the First Business Financial Services, Inc. 2019 Equity Incentive Plan (the “Plan”). The Award shall be subject to the terms of the Plan and the terms set forth in this Performance-Based Restricted Stock Unit Award Agreement (“Award Agreement”).
Section 1.Award. The Company hereby grants to Participant the Award of restricted stock units (each such unit, an “RSU”), where each RSU represents the right of Participant to receive one Share in the future upon the expiration of the Performance Period, subject to the terms of this Award Agreement and the Plan.
Section 2.Terms of Restricted Stock Unit Award. The following words and phrases relating to the Award shall have the following meanings:
(a)The “Participant” is _________________________.
(b)The “Grant Date” is _________________________.
(c)The target number of RSUs is ________________shares.
(d)The maximum number of RSUs is ________________shares.
(e)The “Performance Period” begins on January 1, 2021 and concludes on December 31, 2023.
Except for words and phrases otherwise defined in this Award Agreement, any capitalized word or phrase in this Award Agreement shall have the meaning ascribed to it in the Plan.
Section 3.Performance Measurement.

(a)The Committee shall establish one or more performance goals for each Performance Period, which may consist of business criteria or other metrics (the “Performance Goals”). The Performance Goals are set forth on Exhibit A hereto. Upon the expiration of the Performance Period, the Committee shall have the sole discretion to determine the level of achievement of the Performance Goals and, in accordance with Exhibit A, the number of RSUs, if any, that Participant has earned.
(b)Except as set forth below in Section 3(c) or as may otherwise be provided by the Committee, if Participant’s Termination of Service occurs prior to the expiration of the Performance Period, Participant shall forfeit all rights, title and interest in and to any RSUs subject to the Performance Period.
(c)Notwithstanding the foregoing provisions of this Section 3, if Participant incurs a Termination of Service due to Disability or death, the RSUs shall become fully vested on the date of termination at the level of target performance.



Section 4.Settlement of RSUs. Delivery of Shares or other amounts under this Award Agreement and the Plan shall be subject to the following:
(a)Delivery of Shares. The Company shall deliver to Participant one Share free and clear of any restrictions in settlement of each of the vested and unrestricted RSUs within 75 days following the end of the respective Performance Period.
(b)Compliance with Applicable Laws. Notwithstanding any other term of this Award Agreement or the Plan, the Company shall have no obligation to deliver any Shares or make any other distribution of benefits under this Award Agreement or the Plan unless such delivery or distribution complies with all applicable laws and the applicable rules of any securities exchange or similar entity.
(c)Certificates Not Required. To the extent that this Award Agreement and the Plan provide for the issuance of Shares, such issuance may be effected on a non-certificated basis, to the extent not prohibited by applicable law or the applicable rules of any securities exchange or similar entity.
Section 5.Dividend Equivalents. Participant shall receive a cash payment equivalent to any dividends or other distributions paid with respect to the Shares subject to the RSUs at the target level, so long as the applicable record date occurs before such RSUs are forfeited or cancelled. Such cash payment shall be paid to Participant (or Participant’s beneficiary in accordance with Section 7) at the same time as the dividend or other distribution is paid to Shareholders. If, however, any dividends or distributions with respect to the Shares underlying the RSUs are paid in Shares rather than cash, then Participant shall be credited with additional RSUs equal to the number of Shares that Participant would have received had the RSUs been actual Shares at target level, and such RSUs shall be deemed RSUs added to the Award subject to the same risk of forfeiture and other terms of this Agreement.
Section 6.No Shareholder Rights. Participant shall not have any rights of a Shareholder with respect to the RSUs, including but not limited to, voting rights, prior to settlement of the RSUs pursuant to Section 4(a) above.
Section 7.Heirs and Successors. This Award Agreement shall be binding upon, and inure to the benefit of, the Company and its successors and assigns, and upon any person acquiring all or substantially all of the Company’s assets or business. If any rights of Participant or benefits distributable to Participant under this Award Agreement have not been settled or distributed at the time of Participant’s death, such rights shall be settled for and such benefits shall be distributed to the Designated Beneficiary in accordance with the provisions of this Award Agreement and the Plan. The “Designated Beneficiary” shall be the beneficiary or beneficiaries designated by Participant in a writing filed with the Committee in such form as the Committee may require. Participant’s designation of beneficiary may be amended or revoked from time to time by Participant in accordance with any procedures established by the Committee. If a Participant fails to designate a beneficiary, or if the Designated Beneficiary does not survive Participant, any benefits that would have been provided to Participant shall be provided to the legal representative of the estate of Participant. If a Participant designates a beneficiary and the Designated Beneficiary survives Participant but dies before the provision of the Designated Beneficiary’s benefits under this Award Agreement, then any benefits that would have been provided to the Designated Beneficiary shall be provided to the legal representative of the estate of the Designated Beneficiary.
Section 8.Administration. The authority to manage and control the operation and administration of this Award Agreement and the Plan shall be vested in the Committee, and the Committee shall have all powers with respect to this Award Agreement as it has with respect to the Plan.
2



Any interpretation of this Award Agreement or the Plan by the Committee and any decision made by the Committee with respect to this Award Agreement or the Plan shall be final and binding on all persons.
Section 9.Plan Governs. Notwithstanding any provision of this Award Agreement to the contrary, this Award Agreement shall be subject to the terms of the Plan, a copy of which may be obtained by Participant from the office of the secretary of the Company. This Award Agreement shall be subject to all interpretations, amendments, rules and regulations promulgated by the Committee from time to time. Notwithstanding any provision of this Award Agreement to the contrary, in the event of any discrepancy between the corporate records of the Company, including the Plan, and this Award Agreement, the corporate records of the Company shall control.
Section 10.Not an Employment Contract. Neither the Award nor this Award Agreement shall confer on Participant any rights with respect to continuance of employment or other service with the Company or a Subsidiary, nor shall they interfere in any way with any right the Company or a Subsidiary may otherwise have to terminate or modify the terms of Participant’s employment or other service at any time.
Section 11.Amendment. Without limitation of Section 13 below, this Award Agreement may be amended in accordance with the provisions of the Plan and may otherwise be amended in writing by Participant and the Company without the consent of any other person.
Section 12.Governing Law. This Award Agreement, the Plan and all actions taken in connection herewith and therewith shall be governed by and construed in accordance with the laws of the State of Wisconsin, without reference to principles of conflict of laws, except as superseded by applicable federal law; and any court action commenced to enforce this Agreement shall have as its sole and exclusive venue the County of Dane, Wisconsin.
Section 13.Clawback. The Award and any amount or benefit received under the Plan shall be subject to potential cancellation, recoupment, rescission, payback or other action in accordance with the terms of any applicable Company clawback policy (the “Policy”) or any applicable law, as may be in effect from time to time. Participant hereby acknowledges and consents to the Company’s application, implementation and enforcement of (a) the Policy and any similar policy established by the Company that may apply to Participant together with all other similarly situated participants, whether adopted prior to or following the date of this Award Agreement and (b) any provision of applicable law relating to cancellation, rescission, payback or recoupment of compensation, and agrees that the Company may take such actions as may be necessary to effectuate the Policy, any similar policy and applicable law, without further consideration or action.
Section 14.Nonsolicitation of Clients.
(a)While Participant is employed by the Company and for a period of twelve (12) months immediately following, Participant will not, except on behalf of or as otherwise directed by the Company, directly or indirectly (through or by providing assistance to another person or entity), solicit Financial Services (defined below) business from any client of the Company who/which was a client of the Company and (1) with whom/which Participant had any contact or (2) about whom/which Participant had access to non-public confidential or proprietary information, in the case of both (1) and (2), above, during the period of one year prior to the date Participant ceased to be an employee of the Company.
(b)While Participant is employed by the Company, and for a period of twelve (12) months immediately following, Participant will not, except on behalf of or as otherwise directed by the
3



Company, conduct business relating to Financial Services (defined below) with any client of the Company who/which was a client of the Company and (1) with whom/which Participant had any contact or (2) about whom/which Participant had access to non-public confidential or proprietary information, in the case of both (1) and (2), above, during the period of one year prior to the date Participant ceased to be an employee of the Company.
(c)While Participant is employed by the Company, and for a period of six (6) months immediately following, Participant will not, except on behalf of or as otherwise directed by the Company, directly or indirectly (through or by providing assistance to another person or entity), solicit Financial Services (defined below) business from any prospective client of the Company with whom/which the Company engaged in direct marketing efforts (as opposed to general solicitations of business) and (1) with whom/which Participant had any contact or (2) about whom/which Participant had access to non-public confidential or proprietary information, in the case of both (1) and (2), above, during the period of one year prior to the date Participant ceased to be an employee of the Company.
(d)For clarification purposes, the restrictions described in the above subparagraphs apply to clients whether they are persons or entities. The term “Financial Services” as used herein shall mean products and/or services offered by the Company within the twelve (12) month period immediately preceding Participant’s last day of employment with the Company.
(e)These covenants are effective immediately and shall remain in force before and after the time the rights to the RSUs granted under this Agreement vest, and after such RSUs are issued to or transferred by Participant. The parties intend that this Section 14 and each and all of its individual subparagraphs, provisions, and clauses are severable from any other provision of this agreement, as provided in Section 21, and are also severable from any other promise or duty owed by Participant to the Company.
(f)Participant agrees that each of these covenants is reasonably and properly necessary to protect the legitimate business interests of the Company. Participant acknowledges that damages for the violation of any of these covenants will be inadequate and will not give full, sufficient relief to the Company, and that a breach of any of these covenants will constitute irreparable harm to the Company. Therefore, Participant agrees that in the event of any violation of any of these covenants, the Company shall be entitled to compensatory damages and injunctive relief.
(g)Participant will reimburse and indemnify the Company for the actual costs incurred by the Company in enforcing any of these covenants, including, but not limited to, attorney’s fees reasonably incurred in enforcement activity.
Section 15.Protection of Leadership Pool. Participant and the Company agree to the following:
(a)Participant is a top-level employee of the Company or has special skills or knowledge important to the Company or has skills that are difficult for the Company to replace.
(b)Participant’s colleagues who are employed by the Company in a position of officer or manager, or above (collectively, the “Leadership Pool”) are likewise top-level employees of the Company or have special skills or knowledge important to the Company or have skills that are difficult for the Company to replace.
(c)If Participant or any member of the Leadership Pool ceases to be so employed, the Company will have a business necessity to replace the skills lost.
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(d)It takes time after an employee of the caliber of Participant and/or the Leadership Pool leaves the employ of the Company to replace the skills lost; 180 days is a reasonable measure of the time needed to replace such skills.
(e)A primary and necessary source of replacement of the skills of Participant and/or a member of the Leadership Pool are the other members of the Leadership Pool.
(f)The parties recognize that employees of the Company (not otherwise bound by contract) are not in any way restricted from competing with the Company, and are not obligated to accept, nor even to consider, proposals by the Company that they replace Participant or a member of the Leadership Pool in the event Participant or a member of the Leadership Pool leaves the Company.
(g)Because of Participant’s present position, Participant is in a position to assist and influence those members of the Leadership Pool with whom Participant has or had a working relationship during the immediately preceding two (2) years, or about whom/which Participant has acquired or possessed specialized knowledge (in either case, a “Restricted Person”) in choosing whether to remain with the Company and consider or accept other positions with the Company rather than choosing to seek other opportunities outside the Company. Any suggestion by Participant that a Restricted Person should seek another employment opportunity outside the Company, and any offer of another employment opportunity by another employer to a Restricted Person with the assistance of Participant, would be such assistance and influence, in derogation of Participant’s duty to the Company as a managerial and supervisory employee.
(h)The monetary value of the loss to the Company in case Participant in fact assists or influences a Restricted Person to leave the Company for a competitor would be impossible to precisely measure. Injunctive relief for a breach of subsection (j) would also be ineffective.
(i)The parties agree that a fair estimate of the monetary value of the loss to the Company in case Participant assists or influences another employee to leave the Company for a competitor would be Participant’s daily rate of base pay as of the last day he or she was employed by the Company times 180.
(j)In consideration of this Agreement, and of the continued employment of Participant by the Company, Participant agrees that Participant will not, directly or through another, during Participant’s employment and for a period of one (1) year thereafter, assist or influence any Restricted Person to take a position outside the Company which is reasonably likely to pose a competitive threat to the Company.
(k)In the event of a breach by Participant of subsection (j), the stipulated damages for such breach are agreed to be Participant’s daily rate of base pay as of the time he or she leaves the Company times 180. This provision for stipulated damages is intended to be and is severable from the substantive obligation in subsection (j), and from the other provisions of this Agreement.
(l)Subsections (j) and (k) are solely for the purposes stated in subsections (a) through (k), and are not for the purpose of limiting the ability of Participant to compete with the Company.
(m)Participant and the Company intend that the promise by Participant in subsection (j) is separate and separable from any other obligation of Participant, and for a different purpose, and with a different remedy from the promise of Participant not to solicit or conduct business with certain clients or
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to disclose Confidential Information or Trade Secrets of the Company, under Section 14 and Section 15, respectively.
(n)This Section 15 is effective immediately and remains in force before and after the time the rights to the RSUs granted under this Agreement vest, and after such RSUs are issued to or transferred by Participant.
(o)Participant will reimburse and indemnify the Company for the actual costs incurred by the Company in enforcing these covenants, including, but not limited to, attorney’s fees reasonably incurred in enforcement activity.
Section 16.Confidentiality. In consideration of this Agreement, Participant agrees to the following:
(a)During the term of Participant’s employment, Participant has been, and will continue to be, provided with Trade Secrets and/or Confidential Information. This information has been developed at great expense to Company and is necessary for Company to conduct its business.
(b)While Participant is employed by Company, Participant will not directly or indirectly use or disclose any Trade Secret or Confidential Information, except in the interest and for the benefit of Company.
(c)After the termination of Participant’s employment with Company for any reason, Participant will not directly or indirectly use or disclose any Trade Secret.
(d)For a period of twenty-four (24) months following the termination of Participant’s employment with Company for any reason, Participant will not directly or indirectly use or disclose any Confidential Information. This confidentiality provision is not intended in any way to modify or limit Participant’s ongoing duty to maintain the confidentiality of information as required under federal and state laws and regulations.
(e)For purposes of this Agreement, the term “Trade Secret” has that meaning set forth under applicable law. Participant shall not disclose any information that constitutes a trade secret as defined in § 134.90, Wis. Stats. for as long as the information continues to be a trade secret or any information where disclosure is otherwise restricted by federal, state or local laws and regulations.
(f)For purposes of this Agreement, the term “Confidential Information” means all non-Trade Secret information of, about or related to Company or provided to Company by its clients, vendors and suppliers that is not known generally to the public or Company’s competitors. Confidential Information includes, but is not limited to: (i) new products, product specifications, information about products under development, research, development or business plans, financial information, client lists, vendor or supplier lists, information about transactions with clients, pricing information, information relating to costs, business records, and employment records and policies (other than Participant’s own); (ii) information that is marked or otherwise designated or treated as confidential or proprietary by Company; and (iii) information received by Company from others which Company has an obligation to treat as confidential.
(g)Notwithstanding the foregoing, the terms “Confidential Information” and “Trade Secret” do not include, and the obligations set forth in this Agreement do not apply to, any information that: (1) can be demonstrated by Participant to have been known by Participant prior to Participant’s employment by Company; (2) is or becomes generally available to the public through no act
6



or omission of Participant; (3) is obtained by Participant in good faith from a third party who discloses such information to Participant on a non-confidential basis without violating any obligation of confidentiality or secrecy relating to the information disclosed; or (4) is independently developed by Participant outside the scope of Participant’s employment without the use of Confidential Information or Trade Secrets. Nothing in this Agreement shall limit or supersede any common law, statutory or other protections of trade secrets where such protections provide the Company with greater rights or protections for a longer duration than provided in this Agreement. With respect to the disclosure of a Trade Secret and in accordance with 18 U.S.C. § 1833, Participant shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a Trade Secret that (i) is made in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, provided that, the information is disclosed solely for the purpose of reporting or investigating a suspected violation of law; or (ii) is made in a complaint or other document filed in a lawsuit or other proceeding filed under seal so that it is not disclosed to the public. Participant is further notified that if Participant files a lawsuit for retaliation by the Company for reporting a suspected violation of law, Participant may disclose the Company’s Trade Secrets to Participant’s attorney and use the Trade Secret information in the court proceeding, provided that Participant files any document containing the Trade Secret under seal so that it is not disclosed to the public, and does not disclose the Trade Secret, except pursuant to court order.
(h)These covenants are effective immediately and shall remain in force before and after the time the rights to the RSUs granted under this Agreement vest, and after such RSUs are issued to or transferred by Participant. The parties intend that this Section 16 and each and all of its individual subparagraphs, provisions, and clauses are severable from any other provision of this agreement, as provided in Section 21, and are also severable from any other promise or duty owed by Participant to the Company.
(i)Participant agrees that each of these covenants is reasonably and properly necessary to protect the legitimate business interests of the Company. Participant acknowledges that damages for the violation of any of these covenants will be inadequate and will not give full, sufficient relief to the Company, and that a breach of any of these covenants will constitute irreparable harm to the Company. Therefore, Participant agrees that in the event of any violation of any of these covenants, the Company shall be entitled to compensatory damages and injunctive relief.
(j)Participant will reimburse and indemnify the Company for the actual costs incurred by the Company in enforcing any of these covenants, including, but not limited to, attorney’s fees reasonably incurred in enforcement activity.
(k)Notwithstanding anything herein to the contrary, in accordance with Rule 21F-17 under the Securities Exchange Act of 1934 and the rules promulgated thereunder, the Company shall not impede a Participant’s ability to communicate with the Securities and Exchange Commission or other governmental agencies regarding possible federal securities law violations (1) without the Company’s approval and (2) without having to forfeit or forego any resulting whistleblower awards, and the Company shall not enforce any provision of any policy to the extent such provision would be deemed to require the Company’s prior approval of such communication or forfeiture of any award, except to the extent otherwise permitted by Rule 21F-17.
Section 17.Breach of Restrictive Covenants. Except as otherwise provided by the Committee, notwithstanding any provision of the Plan to the contrary, if Participant breaches a non-competition, non-solicitation, non-disclosure, non-disparagement or other restrictive covenant set forth in an Award Agreement or any other agreement between Participant and the Company, whether during or after Participant’s Termination of Service, in addition to and not in limitation of any other rights,
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remedies, damages, penalties or restrictions available to the Company under the Plan, an Award Agreement, any other agreement between Participant and the Company, or otherwise at law or in equity, Participant shall forfeit or pay to the Company:
(a)Any and all outstanding Awards granted to Participant, including Awards that have become vested or exercisable;
(b)Any Shares held by Participant in connection with the Plan that were acquired by Participant after Participant’s Termination of Service and within the 12-month period immediately preceding Participant’s Termination of Service;
(c)The profit realized by Participant from the exercise of any stock options and SARs that Participant exercised after Participant’s Termination of Service and within the 12-month period immediately preceding Participant’s Termination of Service, which profit is the difference between the exercise price of the stock option or SAR and the Fair Market Value of any Shares or cash acquired by Participant upon exercise of such stock option or SAR; and
(d)The profit realized by Participant from the sale, or other disposition for consideration, of any Shares received by Participant in connection with the Plan after Participant’s Termination of Service and within the 12-month period immediately preceding Participant’s Termination of Service and where such sale or disposition occurs in such similar time period.
Section 18.Offset. The Company shall have the right to offset, from any amount payable or stock deliverable hereunder, any amount that Participant owes to the Company without the consent of Participant or any individual with a right to Participant’s Award
Section 19.Effect on Other Agreements. The foregoing provisions of Section 14 (Nonsolicitation of Clients), Section 15 (Protection of Leadership Pool), and Section 16 (Confidentiality) shall not be construed to supersede or alleviate any obligations of Participant to the Company with respect to any restrictive covenant, non-compete or confidentiality agreement otherwise binding on Participant, which shall remain in full force and effect to the extent provided in any such agreements, and in the event that a provision of such agreement shall conflict with any provision of this Award Agreement, Participant acknowledges and agrees that the provision which is most protective of the Company’s confidential or proprietary interests shall control. Notwithstanding the foregoing, the provisions of Section 14, Section 15 and Section 16 shall supersede and replace any similar restrictions included in previous Award Agreements.
Section 20.Notices. Any notice hereunder to the Company shall be addressed to it at its office, 401 Charmany Drive, Madison, WI 53719; Attention: Corporate Secretary, and any notice hereunder to Participant shall be addressed to him or her at the last home address on file with the Company. Either party may designate some other address at any time hereafter in writing.
Section 21.Severability. In the event any provision of the Agreement is held illegal or invalid for any reason, the illegality or invalidity will not affect the remaining provisions of the Agreement, and the Agreement shall be construed and enforced as if the illegal or invalid provision had not been included.
Section 22.New Employers. While Participant is employed by the Company and for a period of twelve (12) months immediately following the date Participant ceases to be an employee of the Company, Participant will inform each new employer, prior to accepting employment, of the existence of this Agreement, including the prohibitions contained in Section 14, Section 15 and Section 16 and
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provide that employer with a copy of it. Participant authorizes the Company to forward a copy of the prohibitions against competition as contained in this section to any actual or prospective new employer.
Section 23.Waiver of Jury Trial. EXCEPT TO THE EXTENT PROHIBITED BY STATE LAW, BY SIGNING THIS AGREEMENT, EACH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL ACTION, PROCEEDING, CAUSE OF ACTION OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, INCLUDING ANY EXHIBITS, SCHEDULES, AND APPENDICES ATTACHED TO THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (B) IT HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) IT MAKES THIS WAIVER KNOWINGLY AND VOLUNTARILY, AND (D) IT HAS DECIDED TO ENTER INTO THIS AGREEMENT IN CONSIDERATION OF, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
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IN WITNESS WHEREOF, the Company has caused this Award Agreement to be executed in its name and on its behalf, and Participant acknowledges understanding and acceptance of, and agrees to, the terms of this Award Agreement (including, but not limited to, the Waiver of Jury Trial provision set forth in Section 23), all as of the Grant Date.
    FIRST BUSINESS FINANCIAL SERVICES, INC.
    By:     
    Print Name: Corey Chambas
    Title: CEO
    PARTICIPANT
    By:_____________________________________________
    Print Name:






Exhibit A
Performance-Based Restricted Stock Unit
Performance Goals
Performance Goals and Vesting Percentages
Performance Goal Weighting Threshold Target Maximum Actual Performance Result Achievement Percentage*
[Relative Return on Average Equity] 50% 50% 100% 200% [__]% [__]%
[Relative Total Shareholder Return] 50% 50% 100% 200% [__]% [__]%
Total Performance-Based RSU Vesting as a percentage of the Target Award [__]%
*Achievement of each performance goal to be determined by straight-line interpolation for actual performance falling between threshold and target or target and maximum levels. If achievement with respect to a particular performance goal does not reach threshold level, then no portion of the award will vest with respect to such performance goal.

Performance-Based RSU Award Opportunities (as % of Target Award)
Attainment Level [Relative Return on Average Equity] [Relative Total Shareholder Return]
Threshold 50% 50%
Target 100% 100%
Maximum 200% 200%

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Exhibit 10.2
FIRST BUSINESS FINANCIAL SERVICES, INC.
2019 EQUITY INCENTIVE PLAN
RESTRICTED STOCK AWARD AGREEMENT – EXECUTIVE OFFICER
The Participant specified below is hereby granted a restricted stock award (the “Award”) by First Business Financial Services, Inc., a Wisconsin corporation (the “Company”), under the First Business Financial Services, Inc. 2019 Equity Incentive Plan (the “Plan”). The Award shall be subject to the terms of the Plan and the terms set forth in this Restricted Stock Award Agreement (“Award Agreement”).
Section 1.Award. The Company hereby grants to Participant the Award of restricted stock, which represents the right of Participant to enjoy the number of shares set forth in Section 2 below (“Covered Shares”) free of restrictions once the Restricted Period ends, subject to the terms of this Award Agreement and the Plan.
Section 2.Terms of Restricted Stock Award. The following words and phrases relating to the Award shall have the following meanings:
(a)The “Participant” is ______________________________.
(b)The “Grant Date” is ______________________________.
(c)The number of “Covered Shares” is ______________________ Shares.
Except for words and phrases otherwise defined in this Award Agreement, any capitalized word or phrase in this Award Agreement shall have the meaning ascribed to it in the Plan.
Section 3.Restricted Period. The “Restricted Period” for each installment of Covered Shares (each, an “Installment”) shall begin on the Grant Date.
(a)The Restricted Period for thirty-three percent (33%) of the Covered Shares will end on each of the first two (2) anniversaries of the Grant Date and thirty-four percent (34%) of the Covered Shares will end on the third (3rd) anniversary.
(b)Notwithstanding the foregoing provisions of this Section 3, the Restricted Period for all the Covered Shares shall cease immediately and such Covered Shares shall become fully vested immediately upon Participant’s Termination of Service due to Participant’s Disability or Participant’s death.
(c)Except as set forth in Section 3(b) above, or as may otherwise be provided by the Committee, if Participant’s Termination of Service occurs prior to the expiration of one or more Restricted Periods, Participant shall forfeit all rights, title and interest in and to any Installment(s) still subject to a Restricted Period as of such Termination of Service.





Section 4.Dividends. Participant shall be entitled to receive dividends and distributions paid on any Installment during the Restricted Period applicable to such Installment (other than dividends and distributions that may be issued with respect to Shares by virtue of any corporate transaction, to the extent adjustment is made pursuant to Section 3.4 of the Plan); provided, however, that no dividends or distributions shall be payable to or for the benefit of Participant with respect to record dates for such dividends or distributions occurring before the Grant Date or on or after the date, if any, on which Participant has forfeited the respective Covered Shares.
Section 5.Voting Rights. Participant shall be entitled to vote the Covered Shares during the Restricted Period applicable to each Installment; provided, however, that Participant shall not be entitled to vote Covered Shares with respect to record dates occurring before the Grant Date or on or after the date, if any, on which Participant has forfeited those Covered Shares.
Section 6.Deposit of Restricted Stock Award. All Shares issued with respect to Covered Shares shall be registered in the name of Participant and shall be retained by the Company, or an agent of the Company, until the end of the Restricted Period applicable to such Covered Shares.
Section 7.Heirs and Successors. This Award Agreement shall be binding upon, and inure to the benefit of, the Company and its successors and assigns, and upon any person acquiring all or substantially all of the Company’s assets or business. If any rights of Participant or benefits distributable to Participant under this Award Agreement have not been settled or distributed at the time of Participant’s death, such rights shall be settled for and such benefits shall be distributed to the Designated Beneficiary in accordance with the provisions of this Award Agreement and the Plan. The “Designated Beneficiary” shall be the beneficiary or beneficiaries designated by Participant in a writing filed with the Committee in such form as the Committee may require. Participant’s designation of beneficiary may be amended or revoked from time to time by Participant in accordance with any procedures established by the Committee. If a Participant fails to designate a beneficiary, or if the Designated Beneficiary does not survive Participant, any benefits that would have been provided to Participant shall be provided to the legal representative of the estate of Participant. If a Participant designates a beneficiary and the Designated Beneficiary survives Participant but dies before the provision of the Designated Beneficiary’s benefits under this Award Agreement, then any benefits that would have been provided to the Designated Beneficiary shall be provided to the legal representative of the estate of the Designated Beneficiary.
Section 8.Administration. The authority to manage and control the operation and administration of this Award Agreement and the Plan shall be vested in the Committee, and the Committee shall have all powers with respect to this Award Agreement as it has with respect to the Plan. Any interpretation of this Award Agreement or the Plan by the Committee and any decision made by the Committee with respect to this Award Agreement or the Plan shall be final and binding on all persons.
Section 9.Plan Governs. Notwithstanding any provision of this Award Agreement to the contrary, this Award Agreement shall be subject to the terms of the Plan, a copy of which may be obtained by Participant from the office of the secretary of the Company. This Award Agreement shall be subject to all interpretations, amendments, rules and regulations promulgated by the Committee from time to time. Notwithstanding any provision of this Award Agreement to the contrary, in the event of any discrepancy between the corporate records of the Company, including the Plan, and this Award Agreement, the corporate records of the Company shall control.
Section 10.Not an Employment Contract. Neither the Award nor this Award Agreement shall confer on Participant any rights with respect to continuance of employment or other service with the Company or a Subsidiary, nor shall they interfere in any way with any right the Company or a Subsidiary
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may otherwise have to terminate or modify the terms of Participant’s employment or other service at any time.
Section 11.Amendment. Without limitation of Section 13 below, this Award Agreement may be amended in accordance with the provisions of the Plan and may otherwise be amended in writing by Participant and the Company without the consent of any other person.
Section 12.Governing Law. This Award Agreement, the Plan and all actions taken in connection herewith and therewith shall be governed by and construed in accordance with the laws of the State of Wisconsin, without reference to principles of conflict of laws, except as superseded by applicable federal law; and any court action commenced to enforce this Agreement shall have as its sole and exclusive venue the County of Dane, Wisconsin.
Section 13.Clawback. The Award and any amount or benefit received under the Plan shall be subject to potential cancellation, recoupment, rescission, payback or other action in accordance with the terms of any applicable Company clawback policy (the “Policy”) or any applicable law, as may be in effect from time to time. Participant hereby acknowledges and consents to the Company’s application, implementation and enforcement of (a) the Policy and any similar policy established by the Company that may apply to Participant together with all other similarly situated participants, whether adopted prior to or following the date of this Award Agreement and (b) any provision of applicable law relating to cancellation, rescission, payback or recoupment of compensation, and agrees that the Company may take such actions as may be necessary to effectuate the Policy, any similar policy and applicable law, without further consideration or action.
Section 14. Nonsolicitation of Clients.
(a)While Participant is employed by the Company and for a period of twelve (12) months immediately following, Participant will not, except on behalf of or as otherwise directed by the Company, directly or indirectly (through or by providing assistance to another person or entity), solicit Financial Services (defined below) business from any client of the Company who/which was a client of the Company and (1) with whom/which Participant had any contact or (2) about whom/which Participant had access to non-public confidential or proprietary information, in the case of both (1) and (2), above, during the period of one year prior to the date Participant ceased to be an employee of the Company.
(b)While Participant is employed by the Company, and for a period of twelve (12) months immediately following, Participant will not, except on behalf of or as otherwise directed by the Company, conduct business relating to Financial Services (defined below) with any client of the Company who/which was a client of the Company and (1) with whom/which Participant had any contact or (2) about whom/which Participant had access to non-public confidential or proprietary information, in the case of both (1) and (2), above, during the period of one year prior to the date Participant ceased to be an employee of the Company.
(c)While Participant is employed by the Company, and for a period of six (6) months immediately following, Participant will not, except on behalf of or as otherwise directed by the Company, directly or indirectly (through or by providing assistance to another person or entity), solicit Financial Services (defined below) business from any prospective client of the Company with whom/which the Company engaged in direct marketing efforts (as opposed to general solicitations of business) and (1) with whom/which Participant had any contact or (2) about whom/which Participant had access to non-public confidential or proprietary information, in the case of both (1) and (2), above, during the period of one year prior to the date Participant ceased to be an employee of the Company.
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(d)For clarification purposes, the restrictions described in the above subparagraphs apply to clients whether they are persons or entities. The term “Financial Services” as used herein shall mean products and/or services offered by the Company within the twelve (12) month period immediately preceding Participant’s last day of employment with the Company.
(e)These covenants are effective immediately and shall remain in force before and after the time the rights to Restricted Shares granted under this Agreement vest, and after such Restricted Shares are transferred by Participant. The parties intend that this Section 14 and each and all of its individual subparagraphs, provisions, and clauses are severable from any other provision of this agreement, as provided in Section 21, and are also severable from any other promise or duty owed by Participant to the Company.
(f)Participant agrees that each of these covenants is reasonably and properly necessary to protect the legitimate business interests of the Company. Participant acknowledges that damages for the violation of any of these covenants will be inadequate and will not give full, sufficient relief to the Company, and that a breach of any of these covenants will constitute irreparable harm to the Company. Therefore, Participant agrees that in the event of any violation of any of these covenants, the Company shall be entitled to compensatory damages and injunctive relief.
(g)Participant will reimburse and indemnify the Company for the actual costs incurred by the Company in enforcing any of these covenants, including, but not limited to, attorney’s fees reasonably incurred in enforcement activity.
Section 15.Protection of Leadership Pool. Participant and the Company agree to the following:
(a)Participant is a top-level employee of the Company or has special skills or knowledge important to the Company or has skills that are difficult for the Company to replace.
(b)Participant’s colleagues who are employed by the Company in a position of officer or manager, or above (collectively, the “Leadership Pool”) are likewise top-level employees of the Company or have special skills or knowledge important to the Company or have skills that are difficult for the Company to replace.
(c)If Participant or any member of the Leadership Pool ceases to be so employed, the Company will have a business necessity to replace the skills lost.
(d)It takes time after an employee of the caliber of Participant and/or the Leadership Pool leaves the employ of the Company to replace the skills lost; 180 days is a reasonable measure of the time needed to replace such skills.
(e)A primary and necessary source of replacement of the skills of Participant and/or a member of the Leadership Pool are the other members of the Leadership Pool.
(f)The parties recognize that employees of the Company (not otherwise bound by contract) are not in any way restricted from competing with the Company, and are not obligated to accept, nor even to consider, proposals by the Company that they replace Participant or a member of the Leadership Pool in the event Participant or a member of the Leadership Pool leaves the Company.
(g)Because of Participant’s present position, Participant is in a position to assist and influence those members of the Leadership Pool with whom Participant has or had a working relationship
4



during the immediately preceding two (2) years, or about whom/which Participant has acquired or possessed specialized knowledge (in either case, a “Restricted Person”) in choosing whether to remain with the Company and consider or accept other positions with the Company rather than choosing to seek other opportunities outside the Company. Any suggestion by Participant that a Restricted Person should seek another employment opportunity outside the Company, and any offer of another employment opportunity by another employer to a Restricted Person with the assistance of Participant, would be such assistance and influence, in derogation of Participant’s duty to the Company as a managerial and supervisory employee.
(h)The monetary value of the loss to the Company in case Participant in fact assists or influences a Restricted Person to leave the Company for a competitor would be impossible to precisely measure. Injunctive relief for a breach of subsection (j) would also be ineffective.
(i)The parties agree that a fair estimate of the monetary value of the loss to the Company in case Participant assists or influences another employee to leave the Company for a competitor would be Participant’s daily rate of base pay as of the last day he or she was employed by the Company times 180.
(j)In consideration of this Agreement, and of the continued employment of Participant by the Company, Participant agrees that Participant will not, directly or through another, during Participant’s employment and for a period of one (1) year thereafter, assist or influence any Restricted Person to take a position outside the Company which is reasonably likely to pose a competitive threat to the Company.
(k)In the event of a breach by Participant of subsection (j), the stipulated damages for such breach are agreed to be Participant’s daily rate of base pay as of the time he or she leaves the Company times 180. This provision for stipulated damages is intended to be and is severable from the substantive obligation in subsection (j), and from the other provisions of this Agreement.
(l)Subsections (j) and (k) are solely for the purposes stated in subsections (a) through (k) and are not for the purpose of limiting the ability of Participant to compete with the Company.
(m)Participant and the Company intend that the promise by Participant in subsection (j) is separate and separable from any other obligation of Participant, and for a different purpose, and with a different remedy from the promise of Participant not to solicit or conduct business with certain clients or to disclose Confidential Information or Trade Secrets of the Company, under Section 14 and Section 16, respectively.
(n)This Section 15 is effective immediately and remains in force before and after the time the rights to Restricted Shares granted under this Agreement vest, and after such Restricted Shares are transferred by Participant.
(o)Participant will reimburse and indemnify the Company for the actual costs incurred by the Company in enforcing these covenants, including, but not limited to, attorney’s fees reasonably incurred in enforcement activity.
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Section 16.Confidentiality. In consideration of this Agreement, Participant agrees to the following:
(a)During the term of Participant’s employment, Participant has been, and will continue to be, provided with Trade Secrets and/or Confidential Information. This information has been developed at great expense to Company and is necessary for Company to conduct its business.
(b)While Participant is employed by Company, Participant will not directly or indirectly use or disclose any Trade Secret or Confidential Information, except in the interest and for the benefit of Company.
(c)After the termination of Participant’s employment with Company for any reason, Participant will not directly or indirectly use or disclose any Trade Secret.
(d)For a period of twenty-four (24) months following the termination of Participant’s employment with Company for any reason, Participant will not directly or indirectly use or disclose any Confidential Information. This confidentiality provision is not intended in any way to modify or limit Participant’s ongoing duty to maintain the confidentiality of information as required under federal and state laws and regulations.
(e)For purposes of this Agreement, the term “Trade Secret” has that meaning set forth under applicable law. Participant shall not disclose any information that constitutes a trade secret as defined in § 134.90, Wis. Stats. for as long as the information continues to be a trade secret or any information where disclosure is otherwise restricted by federal, state or local laws and regulations.
(f)For purposes of this Agreement, the term “Confidential Information” means all non-Trade Secret information of, about or related to Company or provided to Company by its clients, vendors and suppliers that is not known generally to the public or Company’s competitors. Confidential Information includes, but is not limited to: (i) new products, product specifications, information about products under development, research, development or business plans, financial information, client lists, vendor or supplier lists, information about transactions with clients, pricing information, information relating to costs, business records, and employment records and policies (other than Participant’s own); (ii) information that is marked or otherwise designated or treated as confidential or proprietary by Company; and (iii) information received by Company from others which Company has an obligation to treat as confidential.
(g)Notwithstanding the foregoing, the terms “Confidential Information” and “Trade Secret” do not include, and the obligations set forth in this Agreement do not apply to, any information that: (1) can be demonstrated by Participant to have been known by Participant prior to Participant’s employment by Company; (2) is or becomes generally available to the public through no act or omission of Participant; (3) is obtained by Participant in good faith from a third party who discloses such information to Participant on a non-confidential basis without violating any obligation of confidentiality or secrecy relating to the information disclosed; or (4) is independently developed by Participant outside the scope of Participant’s employment without the use of Confidential Information or Trade Secrets. Nothing in this Agreement shall limit or supersede any common law, statutory or other protections of trade secrets where such protections provide the Company with greater rights or protections for a longer duration than provided in this Agreement. With respect to the disclosure of a Trade Secret and in accordance with 18 U.S.C. § 1833, Participant shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a Trade Secret that (i) is made in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, provided that,
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the information is disclosed solely for the purpose of reporting or investigating a suspected violation of law; or (ii) is made in a complaint or other document filed in a lawsuit or other proceeding filed under seal so that it is not disclosed to the public. Participant is further notified that if Participant files a lawsuit for retaliation by the Company for reporting a suspected violation of law, Participant may disclose the Company’s Trade Secrets to Participant’s attorney and use the Trade Secret information in the court proceeding, provided that Participant files any document containing the Trade Secret under seal so that it is not disclosed to the public, and does not disclose the Trade Secret, except pursuant to court order.
(h)These covenants are effective immediately and shall remain in force before and after the time the rights to Restricted Shares granted under this Agreement vest, and after such Restricted Shares are transferred by Participant. The parties intend that this Section 16 and each and all of its individual subparagraphs, provisions, and clauses are severable from any other provision of this agreement, as provided in Section 21, and are also severable from any other promise or duty owed by Participant to the Company.
(i)Participant agrees that each of these covenants is reasonably and properly necessary to protect the legitimate business interests of the Company. Participant acknowledges that damages for the violation of any of these covenants will be inadequate and will not give full, sufficient relief to the Company, and that a breach of any of these covenants will constitute irreparable harm to the Company. Therefore, Participant agrees that in the event of any violation of any of these covenants, the Company shall be entitled to compensatory damages and injunctive relief.
(j)Participant will reimburse and indemnify the Company for the actual costs incurred by the Company in enforcing any of these covenants, including, but not limited to, attorney’s fees reasonably incurred in enforcement activity.
(k)Notwithstanding anything herein to the contrary, in accordance with Rule 21F-17 under the Securities Exchange Act of 1934 and the rules promulgated thereunder, the Company shall not impede a Participant’s ability to communicate with the Securities and Exchange Commission or other governmental agencies regarding possible federal securities law violations (1) without the Company’s approval and (2) without having to forfeit or forego any resulting whistleblower awards, and the Company shall not enforce any provision of any policy to the extent such provision would be deemed to require the Company’s prior approval of such communication or forfeiture of any award, except to the extent otherwise permitted by Rule 21F-17.
Section 17.Breach of Restrictive Covenants. Except as otherwise provided by the Committee, notwithstanding any provision of the Plan to the contrary, if Participant breaches a non-competition, non-solicitation, non-disclosure, non-disparagement or other restrictive covenant set forth in an Award Agreement or any other agreement between Participant and the Company, whether during or after Participant’s Termination of Service, in addition to and not in limitation of any other rights, remedies, damages, penalties or restrictions available to the Company under the Plan, an Award Agreement, any other agreement between Participant and the Company, or otherwise at law or in equity, Participant shall forfeit or pay to the Company:
(a)Any and all outstanding Awards granted to Participant, including Awards that have become vested or exercisable;
(b)Any Shares held by Participant in connection with the Plan that were acquired by Participant after Participant’s Termination of Service and within the 12-month period immediately preceding Participant’s Termination of Service;
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(c)The profit realized by Participant from the exercise of any stock options and SARs that Participant exercised after Participant’s Termination of Service and within the 12-month period immediately preceding Participant’s Termination of Service, which profit is the difference between the exercise price of the stock option or SAR and the Fair Market Value of any Shares or cash acquired by Participant upon exercise of such stock option or SAR; and
(d)The profit realized by Participant from the sale, or other disposition for consideration, of any Shares received by Participant in connection with the Plan after Participant’s Termination of Service and within the 12-month period immediately preceding Participant’s Termination of Service and where such sale or disposition occurs in such similar time period.
Section 18.Offset. The Company shall have the right to offset, from any amount payable or stock deliverable hereunder, any amount that Participant owes to the Company without the consent of Participant or any individual with a right to Participant’s Award
Section 19.Effect on Other Agreements. The foregoing provisions of Section 14 (Nonsolicitation of Clients), Section 15 (Protection of Leadership Pool), and Section 16 (Confidentiality) shall not be construed to supersede or alleviate any obligations of Participant to the Company with respect to any restrictive covenant, non-compete or confidentiality agreement otherwise binding on Participant, which shall remain in full force and effect to the extent provided in any such agreements, and in the event that a provision of such agreement shall conflict with any provision of this Award Agreement, Participant acknowledges and agrees that the provision which is most protective of the Company’s confidential or proprietary interests shall control. Notwithstanding the foregoing, the provisions of Section 14, Section 15 and Section 16 shall supersede and replace any similar restrictions included in previous Award Agreements.
Section 20.Notices. Any notice hereunder to the Company shall be addressed to it at its office, 401 Charmany Drive, Madison, WI 53719; Attention: Corporate Secretary, and any notice hereunder to Participant shall be addressed to him or her at the last home address on file with the Company. Either party may designate some other address at any time hereafter in writing.
Section 21.Severability. In the event any provision of the Agreement is held illegal or invalid for any reason, the illegality or invalidity will not affect the remaining provisions of the Agreement, and the Agreement shall be construed and enforced as if the illegal or invalid provision had not been included.
Section 22.New Employers. While Participant is employed by the Company and for a period of twelve (12) months immediately following the date Participant ceases to be an employee of the Company, Participant will inform each new employer, prior to accepting employment, of the existence of this Agreement, including the prohibitions contained in Section 14, Section 15 and Section 16 and provide that employer with a copy of it. Participant authorizes the Company to forward a copy of the prohibitions against competition as contained in this section to any actual or prospective new employer.
Section 23.Waiver of Jury Trial. EXCEPT TO THE EXTENT PROHIBITED BY STATE LAW, BY SIGNING THIS AGREEMENT, EACH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL ACTION, PROCEEDING, CAUSE OF ACTION OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, INCLUDING ANY EXHIBITS, SCHEDULES, AND APPENDICES ATTACHED TO THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT
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(A) NO REPRESENTATIVE OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (B) IT HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) IT MAKES THIS WAIVER KNOWINGLY AND VOLUNTARILY, AND (D) IT HAS DECIDED TO ENTER INTO THIS AGREEMENT IN CONSIDERATION OF, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
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IN WITNESS WHEREOF, the Company has caused this Award Agreement to be executed in its name and on its behalf, and Participant acknowledges understanding and acceptance of, and agrees to, the terms of this Award Agreement (including, but not limited to, the Waiver of Jury Trial provision set forth in Section 23), all as of the Grant Date.
    FIRST BUSINESS FINANCIAL SERVICES, INC.
    By:     
    Print Name: Corey Chambas
    Title: CEO
    Print Name:     



Exhibit 10.3
FIRST BUSINESS FINANCIAL SERVICES, INC.
2019 EQUITY INCENTIVE PLAN
RESTRICTED STOCK UNIT AWARD AGREEMENT – EXECUTIVE OFFICER

The Participant specified below is hereby granted a restricted stock unit award (the “Award”) by First Business Financial Services, Inc., a Wisconsin corporation (the “Company”), under the First Business Financial Services, Inc. 2019 Equity Incentive Plan (the “Plan”). The Award shall be subject to the terms of the Plan and the terms set forth in this Restricted Stock Unit Award Agreement (“Award Agreement”).
Section 1.Award. The Company hereby grants to Participant the Award of restricted stock units (each such unit, an “RSU”), where each RSU represents the right of Participant to receive one Share in the future upon the expiration of the Restricted Period, subject to the terms of this Award Agreement and the Plan.
Section 2.Terms of Restricted Stock Unit Award. The following words and phrases relating to the Award shall have the following meanings:
(a)The “Participant” is ______________________________.
(b)The “Grant Date” is ______________________________.
(c)The number of RSUs is ______________________.
Except for words and phrases otherwise defined in this Award Agreement, any capitalized word or phrase in this Award Agreement shall have the meaning ascribed to it in the Plan.
Section 3.Restricted Period.

(a)The “Restricted Period” for thirty-three percent (33%) of the Covered Shares will end on each of the first two (2) anniversaries of the Grant Date and thirty-four percent (34%) of the Covered Shares will end on the third (3rd) anniversary.
(b)Notwithstanding the foregoing provisions of this Section 3, the Restricted Period for all the RSUs shall cease immediately and such RSUs shall become fully vested immediately upon Participant’s Termination of Service due to Participant’s Disability or Participant’s death.
(c)Except as set forth in Section 3(b) above, or as may otherwise be provided by the Committee, if Participant’s Termination of Service occurs prior to the expiration of one or more Restricted Periods, Participant shall forfeit all rights, title and interest in and to any RSUs still subject to a Restricted Period as of such Termination of Service.
Section 4.Settlement of RSUs. Delivery of Shares or other amounts under this Award Agreement and the Plan shall be subject to the following:
(a)Delivery of Shares. The Company shall deliver to Participant one Share free and clear of any restrictions in settlement of each of the vested and unrestricted RSUs within 45 days following the end of the respective Restricted Period.



(b)Compliance with Applicable Laws. Notwithstanding any other term of this Award Agreement or the Plan, the Company shall have no obligation to deliver any Shares or make any other distribution of benefits under this Award Agreement or the Plan unless such delivery or distribution complies with all applicable laws and the applicable rules of any securities exchange or similar entity.
(c)Certificates Not Required. To the extent that this Award Agreement and the Plan provide for the issuance of Shares, such issuance may be effected on a non-certificated basis, to the extent not prohibited by applicable law or the applicable rules of any securities exchange or similar entity.
Section 5.Dividend Equivalents. Participant shall receive a cash payment equivalent to any dividends or other distributions paid with respect to the Shares subject to the RSUs, so long as the applicable record date occurs before such RSUs are forfeited or cancelled. Such cash payment shall be paid to Participant (or Participant’s beneficiary in accordance with Section 7) at the same time as the dividend or other distribution is paid to Shareholders. If, however, any dividends or distributions with respect to the Shares underlying the RSUs are paid in Shares rather than cash, then Participant shall be credited with additional RSUs equal to the number of Shares that Participant would have received had the RSUs been actual Shares, and such RSUs shall be deemed RSUs added to the Award subject to the same risk of forfeiture and other terms of this Agreement.
Section 6.No Shareholder Rights. Participant shall not have any rights of a Shareholder with respect to the RSUs, including but not limited to, voting rights, prior to settlement of the RSUs pursuant to Section 4(a) above.
Section 7.Heirs and Successors. This Award Agreement shall be binding upon, and inure to the benefit of, the Company and its successors and assigns, and upon any person acquiring all or substantially all of the Company’s assets or business. If any rights of Participant or benefits distributable to Participant under this Award Agreement have not been settled or distributed at the time of Participant’s death, such rights shall be settled for and such benefits shall be distributed to the Designated Beneficiary in accordance with the provisions of this Award Agreement and the Plan. The “Designated Beneficiary” shall be the beneficiary or beneficiaries designated by Participant in a writing filed with the Committee in such form as the Committee may require. Participant’s designation of beneficiary may be amended or revoked from time to time by Participant in accordance with any procedures established by the Committee. If a Participant fails to designate a beneficiary, or if the Designated Beneficiary does not survive Participant, any benefits that would have been provided to Participant shall be provided to the legal representative of the estate of Participant. If a Participant designates a beneficiary and the Designated Beneficiary survives Participant but dies before the provision of the Designated Beneficiary’s benefits under this Award Agreement, then any benefits that would have been provided to the Designated Beneficiary shall be provided to the legal representative of the estate of the Designated Beneficiary.
Section 8.Administration. The authority to manage and control the operation and administration of this Award Agreement and the Plan shall be vested in the Committee, and the Committee shall have all powers with respect to this Award Agreement as it has with respect to the Plan. Any interpretation of this Award Agreement or the Plan by the Committee and any decision made by the Committee with respect to this Award Agreement or the Plan shall be final and binding on all persons.
Section 9.Plan Governs. Notwithstanding any provision of this Award Agreement to the contrary, this Award Agreement shall be subject to the terms of the Plan, a copy of which may be obtained by Participant from the office of the secretary of the Company. This Award Agreement shall be subject to all interpretations, amendments, rules and regulations promulgated by the Committee from time to time. Notwithstanding any provision of this Award Agreement to the contrary, in the event of any
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discrepancy between the corporate records of the Company, including the Plan, and this Award Agreement, the corporate records of the Company shall control.
Section 10.Not an Employment Contract. Neither the Award nor this Award Agreement shall confer on Participant any rights with respect to continuance of employment or other service with the Company or a Subsidiary, nor shall they interfere in any way with any right the Company or a Subsidiary may otherwise have to terminate or modify the terms of Participant’s employment or other service at any time.
Section 11.Amendment. Without limitation of Section 13 below, this Award Agreement may be amended in accordance with the provisions of the Plan and may otherwise be amended in writing by Participant and the Company without the consent of any other person.
Section 12.Governing Law. This Award Agreement, the Plan and all actions taken in connection herewith and therewith shall be governed by and construed in accordance with the laws of the State of Wisconsin, without reference to principles of conflict of laws, except as superseded by applicable federal law; and any court action commenced to enforce this Agreement shall have as its sole and exclusive venue the County of Dane, Wisconsin.
Section 13.Clawback. The Award and any amount or benefit received under the Plan shall be subject to potential cancellation, recoupment, rescission, payback or other action in accordance with the terms of any applicable Company clawback policy (the “Policy”) or any applicable law, as may be in effect from time to time. Participant hereby acknowledges and consents to the Company’s application, implementation and enforcement of (a) the Policy and any similar policy established by the Company that may apply to Participant together with all other similarly situated participants, whether adopted prior to or following the date of this Award Agreement and (b) any provision of applicable law relating to cancellation, rescission, payback or recoupment of compensation, and agrees that the Company may take such actions as may be necessary to effectuate the Policy, any similar policy and applicable law, without further consideration or action.
Section 14.Nonsolicitation of Clients.
(a)While Participant is employed by the Company and for a period of twelve (12) months immediately following, Participant will not, except on behalf of or as otherwise directed by the Company, directly or indirectly (through or by providing assistance to another person or entity), solicit Financial Services (defined below) business from any client of the Company who/which was a client of the Company and (1) with whom/which Participant had any contact or (2) about whom/which Participant had access to non-public confidential or proprietary information, in the case of both (1) and (2), above, during the period of one year prior to the date Participant ceased to be an employee of the Company.
(b)While Participant is employed by the Company, and for a period of twelve (12) months immediately following, Participant will not, except on behalf of or as otherwise directed by the Company, conduct business relating to Financial Services (defined below) with any client of the Company who/which was a client of the Company and (1) with whom/which Participant had any contact or (2) about whom/which Participant had access to non-public confidential or proprietary information, in the case of both (1) and (2), above, during the period of one year prior to the date Participant ceased to be an employee of the Company.
(c)While Participant is employed by the Company, and for a period of six (6) months immediately following, Participant will not, except on behalf of or as otherwise directed by the
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Company, directly or indirectly (through or by providing assistance to another person or entity), solicit Financial Services (defined below) business from any prospective client of the Company with whom/which the Company engaged in direct marketing efforts (as opposed to general solicitations of business) and (1) with whom/which Participant had any contact or (2) about whom/which Participant had access to non-public confidential or proprietary information, in the case of both (1) and (2), above, during the period of one year prior to the date Participant ceased to be an employee of the Company.
(d)For clarification purposes, the restrictions described in the above subparagraphs apply to clients whether they are persons or entities. The term “Financial Services” as used herein shall mean products and/or services offered by the Company within the twelve (12) month period immediately preceding Participant’s last day of employment with the Company.
(e)These covenants are effective immediately and shall remain in force before and after the time the rights to the RSUs granted under this Agreement vest, and after such RSUs are issued to or transferred by Participant. The parties intend that this Section 14 and each and all of its individual subparagraphs, provisions, and clauses are severable from any other provision of this agreement, as provided in Section 21, and are also severable from any other promise or duty owed by Participant to the Company.
(f)Participant agrees that each of these covenants is reasonably and properly necessary to protect the legitimate business interests of the Company. Participant acknowledges that damages for the violation of any of these covenants will be inadequate and will not give full, sufficient relief to the Company, and that a breach of any of these covenants will constitute irreparable harm to the Company. Therefore, Participant agrees that in the event of any violation of any of these covenants, the Company shall be entitled to compensatory damages and injunctive relief.
(g)Participant will reimburse and indemnify the Company for the actual costs incurred by the Company in enforcing any of these covenants, including, but not limited to, attorney’s fees reasonably incurred in enforcement activity.
Section 15.Protection of Leadership Pool. Participant and the Company agree to the following:
(a)Participant is a top-level employee of the Company or has special skills or knowledge important to the Company or has skills that are difficult for the Company to replace.
(b)Participant’s colleagues who are employed by the Company in a position of officer or manager, or above (collectively, the “Leadership Pool”) are likewise top-level employees of the Company or have special skills or knowledge important to the Company or have skills that are difficult for the Company to replace.
(c)If Participant or any member of the Leadership Pool ceases to be so employed, the Company will have a business necessity to replace the skills lost.
(d)It takes time after an employee of the caliber of Participant and/or the Leadership Pool leaves the employ of the Company to replace the skills lost; 180 days is a reasonable measure of the time needed to replace such skills.
(e)A primary and necessary source of replacement of the skills of Participant and/or a member of the Leadership Pool are the other members of the Leadership Pool.
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(f)The parties recognize that employees of the Company (not otherwise bound by contract) are not in any way restricted from competing with the Company, and are not obligated to accept, nor even to consider, proposals by the Company that they replace Participant or a member of the Leadership Pool in the event Participant or a member of the Leadership Pool leaves the Company.
(g)Because of Participant’s present position, Participant is in a position to assist and influence those members of the Leadership Pool with whom Participant has or had a working relationship during the immediately preceding two (2) years, or about whom/which Participant has acquired or possessed specialized knowledge (in either case, a “Restricted Person”) in choosing whether to remain with the Company and consider or accept other positions with the Company rather than choosing to seek other opportunities outside the Company. Any suggestion by Participant that a Restricted Person should seek another employment opportunity outside the Company, and any offer of another employment opportunity by another employer to a Restricted Person with the assistance of Participant, would be such assistance and influence, in derogation of Participant’s duty to the Company as a managerial and supervisory employee.
(h)The monetary value of the loss to the Company in case Participant in fact assists or influences a Restricted Person to leave the Company for a competitor would be impossible to precisely measure. Injunctive relief for a breach of subsection (j) would also be ineffective.
(i)The parties agree that a fair estimate of the monetary value of the loss to the Company in case Participant assists or influences another employee to leave the Company for a competitor would be Participant’s daily rate of base pay as of the last day he or she was employed by the Company times 180.
(j)In consideration of this Agreement, and of the continued employment of Participant by the Company, Participant agrees that Participant will not, directly or through another, during Participant’s employment and for a period of one (1) year thereafter, assist or influence any Restricted Person to take a position outside the Company which is reasonably likely to pose a competitive threat to the Company.
(k)In the event of a breach by Participant of subsection (j), the stipulated damages for such breach are agreed to be Participant’s daily rate of base pay as of the time he or she leaves the Company times 180. This provision for stipulated damages is intended to be and is severable from the substantive obligation in subsection (j), and from the other provisions of this Agreement.
(l)Subsections (j) and (k) are solely for the purposes stated in subsections (a) through (k), and are not for the purpose of limiting the ability of Participant to compete with the Company.
(m)Participant and the Company intend that the promise by Participant in subsection (j) is separate and separable from any other obligation of Participant, and for a different purpose, and with a different remedy from the promise of Participant not to solicit or conduct business with certain clients or to disclose Confidential Information or Trade Secrets of the Company, under Section 14 and Section 16, respectively.
(n)This Section 15 is effective immediately and remains in force before and after the time the rights to the RSUs granted under this Agreement vest, and after such RSUs are issued to or transferred by Participant.
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(o)Participant will reimburse and indemnify the Company for the actual costs incurred by the Company in enforcing these covenants, including, but not limited to, attorney’s fees reasonably incurred in enforcement activity.
Section 16.Confidentiality. In consideration of this Agreement, Participant agrees to the following:
(a)During the term of Participant’s employment, Participant has been, and will continue to be, provided with Trade Secrets and/or Confidential Information. This information has been developed at great expense to Company and is necessary for Company to conduct its business.
(b)While Participant is employed by Company, Participant will not directly or indirectly use or disclose any Trade Secret or Confidential Information, except in the interest and for the benefit of Company.
(c)After the termination of Participant’s employment with Company for any reason, Participant will not directly or indirectly use or disclose any Trade Secret.
(d)For a period of twenty-four (24) months following the termination of Participant’s employment with Company for any reason, Participant will not directly or indirectly use or disclose any Confidential Information. This confidentiality provision is not intended in any way to modify or limit Participant’s ongoing duty to maintain the confidentiality of information as required under federal and state laws and regulations.
(e)For purposes of this Agreement, the term “Trade Secret” has that meaning set forth under applicable law. Participant shall not disclose any information that constitutes a trade secret as defined in § 134.90, Wis. Stats. for as long as the information continues to be a trade secret or any information where disclosure is otherwise restricted by federal, state or local laws and regulations.
(f)For purposes of this Agreement, the term “Confidential Information” means all non-Trade Secret information of, about or related to Company or provided to Company by its clients, vendors and suppliers that is not known generally to the public or Company’s competitors. Confidential Information includes, but is not limited to: (i) new products, product specifications, information about products under development, research, development or business plans, financial information, client lists, vendor or supplier lists, information about transactions with clients, pricing information, information relating to costs, business records, and employment records and policies (other than Participant’s own); (ii) information that is marked or otherwise designated or treated as confidential or proprietary by Company; and (iii) information received by Company from others which Company has an obligation to treat as confidential.
(g)Notwithstanding the foregoing, the terms “Confidential Information” and “Trade Secret” do not include, and the obligations set forth in this Agreement do not apply to, any information that: (1) can be demonstrated by Participant to have been known by Participant prior to Participant’s employment by Company; (2) is or becomes generally available to the public through no act or omission of Participant; (3) is obtained by Participant in good faith from a third party who discloses such information to Participant on a non-confidential basis without violating any obligation of confidentiality or secrecy relating to the information disclosed; or (4) is independently developed by Participant outside the scope of Participant’s employment without the use of Confidential Information or Trade Secrets. Nothing in this Agreement shall limit or supersede any common law, statutory or other protections of trade secrets where such protections provide the Company with greater rights or protections
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for a longer duration than provided in this Agreement. With respect to the disclosure of a Trade Secret and in accordance with 18 U.S.C. § 1833, Participant shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a Trade Secret that (i) is made in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, provided that, the information is disclosed solely for the purpose of reporting or investigating a suspected violation of law; or (ii) is made in a complaint or other document filed in a lawsuit or other proceeding filed under seal so that it is not disclosed to the public. Participant is further notified that if Participant files a lawsuit for retaliation by the Company for reporting a suspected violation of law, Participant may disclose the Company’s Trade Secrets to Participant’s attorney and use the Trade Secret information in the court proceeding, provided that Participant files any document containing the Trade Secret under seal so that it is not disclosed to the public, and does not disclose the Trade Secret, except pursuant to court order.
(h)These covenants are effective immediately and shall remain in force before and after the time the rights to the RSUs granted under this Agreement vest, and after such RSUs are issued to or transferred by Participant. The parties intend that this Section 16 and each and all of its individual subparagraphs, provisions, and clauses are severable from any other provision of this agreement, as provided in Section 21, and are also severable from any other promise or duty owed by Participant to the Company.
(i)Participant agrees that each of these covenants is reasonably and properly necessary to protect the legitimate business interests of the Company. Participant acknowledges that damages for the violation of any of these covenants will be inadequate and will not give full, sufficient relief to the Company, and that a breach of any of these covenants will constitute irreparable harm to the Company. Therefore, Participant agrees that in the event of any violation of any of these covenants, the Company shall be entitled to compensatory damages and injunctive relief.
(j)Participant will reimburse and indemnify the Company for the actual costs incurred by the Company in enforcing any of these covenants, including, but not limited to, attorney’s fees reasonably incurred in enforcement activity.
(k)Notwithstanding anything herein to the contrary, in accordance with Rule 21F-17 under the Securities Exchange Act of 1934 and the rules promulgated thereunder, the Company shall not impede a Participant’s ability to communicate with the Securities and Exchange Commission or other governmental agencies regarding possible federal securities law violations (1) without the Company’s approval and (2) without having to forfeit or forego any resulting whistleblower awards, and the Company shall not enforce any provision of any policy to the extent such provision would be deemed to require the Company’s prior approval of such communication or forfeiture of any award, except to the extent otherwise permitted by Rule 21F-17.
Section 17.Breach of Restrictive Covenants. Except as otherwise provided by the Committee, notwithstanding any provision of the Plan to the contrary, if Participant breaches a non-competition, non-solicitation, non-disclosure, non-disparagement or other restrictive covenant set forth in an Award Agreement or any other agreement between Participant and the Company, whether during or after Participant’s Termination of Service, in addition to and not in limitation of any other rights, remedies, damages, penalties or restrictions available to the Company under the Plan, an Award Agreement, any other agreement between Participant and the Company, or otherwise at law or in equity, Participant shall forfeit or pay to the Company:
(a)Any and all outstanding Awards granted to Participant, including Awards that have become vested or exercisable;
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(b)Any Shares held by Participant in connection with the Plan that were acquired by Participant after Participant’s Termination of Service and within the 12-month period immediately preceding Participant’s Termination of Service;
(c)The profit realized by Participant from the exercise of any stock options and SARs that Participant exercised after Participant’s Termination of Service and within the 12-month period immediately preceding Participant’s Termination of Service, which profit is the difference between the exercise price of the stock option or SAR and the Fair Market Value of any Shares or cash acquired by Participant upon exercise of such stock option or SAR; and
(d)The profit realized by Participant from the sale, or other disposition for consideration, of any Shares received by Participant in connection with the Plan after Participant’s Termination of Service and within the 12-month period immediately preceding Participant’s Termination of Service and where such sale or disposition occurs in such similar time period.
Section 18.Offset. The Company shall have the right to offset, from any amount payable or stock deliverable hereunder, any amount that Participant owes to the Company without the consent of Participant or any individual with a right to Participant’s Award
Section 19.Effect on Other Agreements. The foregoing provisions of Section 14 (Nonsolicitation of Clients), Section 15 (Protection of Leadership Pool), and Section 16 (Confidentiality) shall not be construed to supersede or alleviate any obligations of Participant to the Company with respect to any restrictive covenant, non-compete or confidentiality agreement otherwise binding on Participant, which shall remain in full force and effect to the extent provided in any such agreements, and in the event that a provision of such agreement shall conflict with any provision of this Award Agreement, Participant acknowledges and agrees that the provision which is most protective of the Company’s confidential or proprietary interests shall control. Notwithstanding the foregoing, the provisions of Section 14, Section 15 and Section 16 shall supersede and replace any similar restrictions included in previous Award Agreements.
Section 20.Notices. Any notice hereunder to the Company shall be addressed to it at its office, 401 Charmany Drive, Madison, WI 53719; Attention: Corporate Secretary, and any notice hereunder to Participant shall be addressed to him or her at the last home address on file with the Company. Either party may designate some other address at any time hereafter in writing.
Section 21.Severability. In the event any provision of the Agreement is held illegal or invalid for any reason, the illegality or invalidity will not affect the remaining provisions of the Agreement, and the Agreement shall be construed and enforced as if the illegal or invalid provision had not been included.
Section 22.New Employers. While Participant is employed by the Company and for a period of twelve (12) months immediately following the date Participant ceases to be an employee of the Company, Participant will inform each new employer, prior to accepting employment, of the existence of this Agreement, including the prohibitions contained in Section 14, Section 15 and Section 16 and provide that employer with a copy of it. Participant authorizes the Company to forward a copy of the prohibitions against competition as contained in this section to any actual or prospective new employer.
Section 23.Waiver of Jury Trial. EXCEPT TO THE EXTENT PROHIBITED BY STATE LAW, BY SIGNING THIS AGREEMENT, EACH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
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LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL ACTION, PROCEEDING, CAUSE OF ACTION OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, INCLUDING ANY EXHIBITS, SCHEDULES, AND APPENDICES ATTACHED TO THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (B) IT HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) IT MAKES THIS WAIVER KNOWINGLY AND VOLUNTARILY, AND (D) IT HAS DECIDED TO ENTER INTO THIS AGREEMENT IN CONSIDERATION OF, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
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IN WITNESS WHEREOF, the Company has caused this Award Agreement to be executed in its name and on its behalf, and Participant acknowledges understanding and acceptance of, and agrees to, the terms of this Award Agreement (including, but not limited to, the Waiver of Jury Trial provision set forth in Section 23), all as of the Grant Date.
    FIRST BUSINESS FINANCIAL SERVICES, INC.
    By:     
    Print Name: Corey Chambas
    Title: CEO
    PARTICIPANT
        
    Print Name:     

Exhibit 10.4
FIRST BUSINESS FINANCIAL SERVICES, INC.
2019 EQUITY INCENTIVE PLAN
PERFORMANCE-BASED RESTRICTED STOCK UNIT AWARD AGREEMENT
EXECUTIVE OFFICER

The Participant specified below is hereby granted a performance-based restricted stock unit award (the “Award”) by First Business Financial Services, Inc., a Wisconsin corporation (the “Company”), under the First Business Financial Services, Inc. 2019 Equity Incentive Plan (the “Plan”) in exchange for the cancellation of the Participant’s restricted award agreement dated _____________ and the cancellation of the shares issued thereunder that have not yet vested as of the Grant Date. The Award shall be subject to the terms of the Plan and the terms set forth in this Performance-Based Restricted Stock Unit Award Agreement (“Award Agreement”).
Section 1.Award. The Company hereby grants to Participant the Award of restricted stock units (each such unit, an “RSU”), where each RSU represents the right of Participant to receive one Share in the future upon the expiration of the Performance Period, subject to the terms of this Award Agreement and the Plan.
Section 2.Terms of Restricted Stock Unit Award. The following words and phrases relating to the Award shall have the following meanings:
(a)The “Participant” is ______________________________.
(b)The “Grant Date” is ______________________________.
(c)The target number of RSUs is _______________________ .
(d)The maximum number of RSUs is ______________________.
(e)The “Performance Period” begins on _________________ and concludes on ___________________.
Except for words and phrases otherwise defined in this Award Agreement, any capitalized word or phrase in this Award Agreement shall have the meaning ascribed to it in the Plan.
Section 3.Performance Measurement.

(a)The Committee shall establish one or more performance goals for each Performance Period, which may consist of business criteria or other metrics (the “Performance Goals”). The Performance Goals are set forth on Exhibit A hereto. Upon the expiration of the Performance Period, the Committee shall have the sole discretion to determine the level of achievement of the Performance Goals and, in accordance with Exhibit A, the number of RSUs, if any, that Participant has earned.
(b)Except as set forth below in Section 3(c) and Section 3(d), or as may otherwise be provided by the Committee, if Participant’s Termination of Service occurs prior to the expiration of the Performance Period, Participant shall forfeit all rights, title and interest in and to any RSUs subject to the Performance Period.



(c)Notwithstanding the foregoing provisions of this Section 3, if Participant incurs a Termination of Service due to Disability or death, the RSUs shall become fully vested on the date of termination at the level of target performance.
(d)Notwithstanding the foregoing provisions of this Section 3 or any other agreement to the contrary between Participant and the Company, if Participant incurs a Termination of Service as a result of Retirement after the first anniversary of the Grant Date, then the RSUs shall not be forfeited as a result of such Retirement and shall continue to vest for as long as Participant remains Retired. Participant’s RSUs earned shall be prorated based on Participant’s retirement date.
(i)Retirement” means a Termination of Service on or after the date on which Participant has achieved age sixty (60) with at least ten (10) years of service in a senior executive capacity with the Company; provided that Participant provides at least twelve (12) months’ notice to the Company’s Chief Executive Officer (or, if Participant is the Company’s Chief Executive Officer, to the Board) prior to such Retirement.
(ii)Following Retirement, Participant shall be “Retired” so long as Participant does not (x) directly, or indirectly through another, act as an officer, director, partner or employee of or consultant to, or act in any managerial capacity with, any entity that is engaged in the financial services industry or (y) act in any full-time position with any other entity if such position requires duties and responsibilities similar to the duties and responsibilities of Participant with the Company prior to Retirement.
(iii)Whether Participant remains Retired at any time shall be determined by the Board or the Committee in its sole discretion. If, while this Award is outstanding, Participant commences employment or other work of any kind following Retirement, then Participant is required to promptly provide written notice to the Company of the name of his or her employer and the nature of his or her position or other work. In addition, as a condition for this Award to remain outstanding following Retirement, the Company will require Participant to provide information relating to his or her activities following Retirement prior to each vesting date to enable the Board or the Committee to determine whether Participant remains Retired, and Participant’s failure to provide such information upon request will cause the Award to be forfeited.
(iv)If Participant receives any benefit under this Award after Retirement but when he or she is no longer Retired, then Participant will be obligated to repay to the Company the value of such benefit (with such value to be determined by the Company, which may include a reasonable rate of interest) promptly following receipt from the Company of notice to Participant of his or her repayment obligation.
Section 4.Settlement of RSUs. Delivery of Shares or other amounts under this Award Agreement and the Plan shall be subject to the following:
(a)Delivery of Shares. The Company shall deliver to Participant one Share free and clear of any restrictions in settlement of each of the vested and unrestricted RSUs within 60 days following the end of the respective Performance Period.
(b)Compliance with Applicable Laws. Notwithstanding any other term of this Award Agreement or the Plan, the Company shall have no obligation to deliver any Shares or make any
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other distribution of benefits under this Award Agreement or the Plan unless such delivery or distribution complies with all applicable laws and the applicable rules of any securities exchange or similar entity.
(c)Certificates Not Required. To the extent that this Award Agreement and the Plan provide for the issuance of Shares, such issuance may be effected on a non-certificated basis, to the extent not prohibited by applicable law or the applicable rules of any securities exchange or similar entity.
Section 5.Dividend Equivalents. Participant shall receive a cash payment equivalent to any dividends or other distributions paid with respect to the Shares subject to the RSUs at the target level, so long as the applicable record date occurs before such RSUs are forfeited or cancelled. Such cash payment shall be paid to Participant (or Participant’s beneficiary in accordance with Section 7) at the same time as the dividend or other distribution is paid to Shareholders. If, however, any dividends or distributions with respect to the Shares underlying the RSUs are paid in Shares rather than cash, then Participant shall be credited with additional RSUs equal to the number of Shares that Participant would have received had the RSUs been actual Shares at target level, and such RSUs shall be deemed RSUs added to the Award subject to the same risk of forfeiture and other terms of this Agreement.
Section 6.No Shareholder Rights. Participant shall not have any rights of a Shareholder with respect to the RSUs, including but not limited to, voting rights, prior to settlement of the RSUs pursuant to Section 4(a) above.
Section 7.Heirs and Successors. This Award Agreement shall be binding upon, and inure to the benefit of, the Company and its successors and assigns, and upon any person acquiring all or substantially all of the Company’s assets or business. If any rights of Participant or benefits distributable to Participant under this Award Agreement have not been settled or distributed at the time of Participant’s death, such rights shall be settled for and such benefits shall be distributed to the Designated Beneficiary in accordance with the provisions of this Award Agreement and the Plan. The “Designated Beneficiary” shall be the beneficiary or beneficiaries designated by Participant in a writing filed with the Committee in such form as the Committee may require. Participant’s designation of beneficiary may be amended or revoked from time to time by Participant in accordance with any procedures established by the Committee. If a Participant fails to designate a beneficiary, or if the Designated Beneficiary does not survive Participant, any benefits that would have been provided to Participant shall be provided to the legal representative of the estate of Participant. If a Participant designates a beneficiary and the Designated Beneficiary survives Participant but dies before the provision of the Designated Beneficiary’s benefits under this Award Agreement, then any benefits that would have been provided to the Designated Beneficiary shall be provided to the legal representative of the estate of the Designated Beneficiary.
Section 8.Administration. The authority to manage and control the operation and administration of this Award Agreement and the Plan shall be vested in the Committee, and the Committee shall have all powers with respect to this Award Agreement as it has with respect to the Plan. Any interpretation of this Award Agreement or the Plan by the Committee and any decision made by the Committee with respect to this Award Agreement or the Plan shall be final and binding on all persons.
Section 9.Plan Governs. Notwithstanding any provision of this Award Agreement to the contrary, this Award Agreement shall be subject to the terms of the Plan, a copy of which may be obtained by Participant from the office of the secretary of the Company. This Award Agreement shall be subject to all interpretations, amendments, rules and regulations promulgated by the Committee from time to time. Notwithstanding any provision of this Award Agreement to the contrary, in the event of any discrepancy between the corporate records of the Company, including the Plan, and this Award Agreement, the corporate records of the Company shall control.
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Section 10.Not an Employment Contract. Neither the Award nor this Award Agreement shall confer on Participant any rights with respect to continuance of employment or other service with the Company or a Subsidiary, nor shall they interfere in any way with any right the Company or a Subsidiary may otherwise have to terminate or modify the terms of Participant’s employment or other service at any time.
Section 11.Amendment. Without limitation of Section 13 below, this Award Agreement may be amended in accordance with the provisions of the Plan and may otherwise be amended in writing by Participant and the Company without the consent of any other person.
Section 12.Governing Law. This Award Agreement, the Plan and all actions taken in connection herewith and therewith shall be governed by and construed in accordance with the laws of the State of Wisconsin, without reference to principles of conflict of laws, except as superseded by applicable federal law; and any court action commenced to enforce this Agreement shall have as its sole and exclusive venue the County of Dane, Wisconsin.
Section 13.Clawback. The Award and any amount or benefit received under the Plan shall be subject to potential cancellation, recoupment, rescission, payback or other action in accordance with the terms of any applicable Company clawback policy (the “Policy”) or any applicable law, as may be in effect from time to time. Participant hereby acknowledges and consents to the Company’s application, implementation and enforcement of (a) the Policy and any similar policy established by the Company that may apply to Participant together with all other similarly situated participants, whether adopted prior to or following the date of this Award Agreement and (b) any provision of applicable law relating to cancellation, rescission, payback or recoupment of compensation, and agrees that the Company may take such actions as may be necessary to effectuate the Policy, any similar policy and applicable law, without further consideration or action.
Section 14.Nonsolicitation of Clients.
(a)While Participant is employed by the Company and for a period of twelve (12) months immediately following, Participant will not, except on behalf of or as otherwise directed by the Company, directly or indirectly (through or by providing assistance to another person or entity), solicit Financial Services (defined below) business from any client of the Company who/which was a client of the Company and (1) with whom/which Participant had any contact or (2) about whom/which Participant had access to non-public confidential or proprietary information, in the case of both (1) and (2), above, during the period of one year prior to the date Participant ceased to be an employee of the Company.
(b)While Participant is employed by the Company, and for a period of twelve (12) months immediately following, Participant will not, except on behalf of or as otherwise directed by the Company, conduct business relating to Financial Services (defined below) with any client of the Company who/which was a client of the Company and (1) with whom/which Participant had any contact or (2) about whom/which Participant had access to non-public confidential or proprietary information, in the case of both (1) and (2), above, during the period of one year prior to the date Participant ceased to be an employee of the Company.
(c)While Participant is employed by the Company, and for a period of six (6) months immediately following, Participant will not, except on behalf of or as otherwise directed by the Company, directly or indirectly (through or by providing assistance to another person or entity), solicit Financial Services (defined below) business from any prospective client of the Company with whom/which the Company engaged in direct marketing efforts (as opposed to general solicitations of business)
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and (1) with whom/which Participant had any contact or (2) about whom/which Participant had access to non-public confidential or proprietary information, in the case of both (1) and (2), above, during the period of one year prior to the date Participant ceased to be an employee of the Company.
(d)For clarification purposes, the restrictions described in the above subparagraphs apply to clients whether they are persons or entities. The term “Financial Services” as used herein shall mean products and/or services offered by the Company within the twelve (12) month period immediately preceding Participant’s last day of employment with the Company.
(e)These covenants are effective immediately and shall remain in force before and after the time the rights to the RSUs granted under this Agreement vest, and after such RSUs are issued to or transferred by Participant. The parties intend that this Section 14(e) and each and all of its individual subparagraphs, provisions, and clauses are severable from any other provision of this agreement, as provided in Section 21, and are also severable from any other promise or duty owed by Participant to the Company.
(f)Participant agrees that each of these covenants is reasonably and properly necessary to protect the legitimate business interests of the Company. Participant acknowledges that damages for the violation of any of these covenants will be inadequate and will not give full, sufficient relief to the Company, and that a breach of any of these covenants will constitute irreparable harm to the Company. Therefore, Participant agrees that in the event of any violation of any of these covenants, the Company shall be entitled to compensatory damages and injunctive relief.
(g)Participant will reimburse and indemnify the Company for the actual costs incurred by the Company in enforcing any of these covenants, including, but not limited to, attorney’s fees reasonably incurred in enforcement activity.
Section 15.Protection of Leadership Pool. Participant and the Company agree to the following:
(a)Participant is a top-level employee of the Company or has special skills or knowledge important to the Company or has skills that are difficult for the Company to replace.
(b)Participant’s colleagues who are employed by the Company in a position of officer or manager, or above (collectively, the “Leadership Pool”) are likewise top-level employees of the Company or have special skills or knowledge important to the Company or have skills that are difficult for the Company to replace.
(c)If Participant or any member of the Leadership Pool ceases to be so employed, the Company will have a business necessity to replace the skills lost.
(d)It takes time after an employee of the caliber of Participant and/or the Leadership Pool leaves the employ of the Company to replace the skills lost; 180 days is a reasonable measure of the time needed to replace such skills.
(e)A primary and necessary source of replacement of the skills of Participant and/or a member of the Leadership Pool are the other members of the Leadership Pool.
(f)The parties recognize that employees of the Company (not otherwise bound by contract) are not in any way restricted from competing with the Company, and are not obligated to accept,
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nor even to consider, proposals by the Company that they replace Participant or a member of the Leadership Pool in the event Participant or a member of the Leadership Pool leaves the Company.
(g)Because of Participant’s present position, Participant is in a position to assist and influence those members of the Leadership Pool with whom Participant has or had a working relationship during the immediately preceding two (2) years, or about whom/which Participant has acquired or possessed specialized knowledge (in either case, a “Restricted Person”) in choosing whether to remain with the Company and consider or accept other positions with the Company rather than choosing to seek other opportunities outside the Company. Any suggestion by Participant that a Restricted Person should seek another employment opportunity outside the Company, and any offer of another employment opportunity by another employer to a Restricted Person with the assistance of Participant, would be such assistance and influence, in derogation of Participant’s duty to the Company as a managerial and supervisory employee.
(h)The monetary value of the loss to the Company in case Participant in fact assists or influences a Restricted Person to leave the Company for a competitor would be impossible to precisely measure. Injunctive relief for a breach of subsection (j) would also be ineffective.
(i)The parties agree that a fair estimate of the monetary value of the loss to the Company in case Participant assists or influences another employee to leave the Company for a competitor would be Participant’s daily rate of base pay as of the last day he or she was employed by the Company times 180.
(j)In consideration of this Agreement, and of the continued employment of Participant by the Company, Participant agrees that Participant will not, directly or through another, during Participant’s employment and for a period of one (1) year thereafter, assist or influence any Restricted Person to take a position outside the Company which is reasonably likely to pose a competitive threat to the Company.
(k)In the event of a breach by Participant of subsection (j), the stipulated damages for such breach are agreed to be Participant’s daily rate of base pay as of the time he or she leaves the Company times 180. This provision for stipulated damages is intended to be and is severable from the substantive obligation in subsection (j), and from the other provisions of this Agreement.
(l)Subsections (j) and (k) are solely for the purposes stated in subsections (a) through (k), and are not for the purpose of limiting the ability of Participant to compete with the Company.
(m)Participant and the Company intend that the promise by Participant in subsection (j) is separate and separable from any other obligation of Participant, and for a different purpose, and with a different remedy from the promise of Participant not to solicit or conduct business with certain clients or to disclose Confidential Information or Trade Secrets of the Company, under Section 14 and Section 16, respectively.
(n)This Section 15 is effective immediately, and remains in force before and after the time the rights to the RSUs granted under this Agreement vest, and after such RSUs are issued to or transferred by Participant.
(o)Participant will reimburse and indemnify the Company for the actual costs incurred by the Company in enforcing these covenants, including, but not limited to, attorney’s fees reasonably incurred in enforcement activity.
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Section 16.Confidentiality. In consideration of this Agreement, Participant agrees to the following:
(a)During the term of Participant’s employment, Participant has been, and will continue to be, provided with Trade Secrets and/or Confidential Information. This information has been developed at great expense to Company and is necessary for Company to conduct its business.
(b)While Participant is employed by Company, Participant will not directly or indirectly use or disclose any Trade Secret or Confidential Information, except in the interest and for the benefit of Company.
(c)After the termination of Participant’s employment with Company for any reason, Participant will not directly or indirectly use or disclose any Trade Secret.
(d)For a period of twenty-four (24) months following the termination of Participant’s employment with Company for any reason, Participant will not directly or indirectly use or disclose any Confidential Information. This confidentiality provision is not intended in any way to modify or limit Participant’s ongoing duty to maintain the confidentiality of information as required under federal and state laws and regulations.
(e)For purposes of this Agreement, the term “Trade Secret” has that meaning set forth under applicable law. Participant shall not disclose any information that constitutes a trade secret as defined in § 134.90, Wis. Stats. for as long as the information continues to be a trade secret or any information where disclosure is otherwise restricted by federal, state or local laws and regulations.
(f)For purposes of this Agreement, the term “Confidential Information” means all non-Trade Secret information of, about or related to Company or provided to Company by its clients, vendors and suppliers that is not known generally to the public or Company’s competitors. Confidential Information includes, but is not limited to: (i) new products, product specifications, information about products under development, research, development or business plans, financial information, client lists, vendor or supplier lists, information about transactions with clients, pricing information, information relating to costs, business records, and employment records and policies (other than Participant’s own); (ii) information that is marked or otherwise designated or treated as confidential or proprietary by Company; and (iii) information received by Company from others which Company has an obligation to treat as confidential.
(g)Notwithstanding the foregoing, the terms “Confidential Information” and “Trade Secret” do not include, and the obligations set forth in this Agreement do not apply to, any information that: (1) can be demonstrated by Participant to have been known by Participant prior to Participant’s employment by Company; (2) is or becomes generally available to the public through no act or omission of Participant; (3) is obtained by Participant in good faith from a third party who discloses such information to Participant on a non-confidential basis without violating any obligation of confidentiality or secrecy relating to the information disclosed; or (4) is independently developed by Participant outside the scope of Participant’s employment without the use of Confidential Information or Trade Secrets. Nothing in this Agreement shall limit or supersede any common law, statutory or other protections of trade secrets where such protections provide the Company with greater rights or protections for a longer duration than provided in this Agreement. With respect to the disclosure of a Trade Secret and in accordance with 18 U.S.C. § 1833, Participant shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a Trade Secret that (i) is made in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, provided that,
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the information is disclosed solely for the purpose of reporting or investigating a suspected violation of law; or (ii) is made in a complaint or other document filed in a lawsuit or other proceeding filed under seal so that it is not disclosed to the public. Participant is further notified that if Participant files a lawsuit for retaliation by the Company for reporting a suspected violation of law, Participant may disclose the Company’s Trade Secrets to Participant’s attorney and use the Trade Secret information in the court proceeding, provided that Participant files any document containing the Trade Secret under seal so that it is not disclosed to the public, and does not disclose the Trade Secret, except pursuant to court order.
(h)These covenants are effective immediately and shall remain in force before and after the time the rights to the RSUs granted under this Agreement vest, and after such RSUs are issued to or transferred by Participant. The parties intend that this Section 16 and each and all of its individual subparagraphs, provisions, and clauses are severable from any other provision of this agreement, as provided in Section 21, and are also severable from any other promise or duty owed by Participant to the Company.
(i)Participant agrees that each of these covenants is reasonably and properly necessary to protect the legitimate business interests of the Company. Participant acknowledges that damages for the violation of any of these covenants will be inadequate and will not give full, sufficient relief to the Company, and that a breach of any of these covenants will constitute irreparable harm to the Company. Therefore, Participant agrees that in the event of any violation of any of these covenants, the Company shall be entitled to compensatory damages and injunctive relief.
(j)Participant will reimburse and indemnify the Company for the actual costs incurred by the Company in enforcing any of these covenants, including, but not limited to, attorney’s fees reasonably incurred in enforcement activity.
(k)Notwithstanding anything herein to the contrary, in accordance with Rule 21F-17 under the Securities Exchange Act of 1934 and the rules promulgated thereunder, the Company shall not impede a Participant’s ability to communicate with the Securities and Exchange Commission or other governmental agencies regarding possible federal securities law violations (1) without the Company’s approval and (2) without having to forfeit or forego any resulting whistleblower awards, and the Company shall not enforce any provision of any policy to the extent such provision would be deemed to require the Company’s prior approval of such communication or forfeiture of any award, except to the extent otherwise permitted by Rule 21F-17.
Section 17.Breach of Restrictive Covenants. Except as otherwise provided by the Committee, notwithstanding any provision of the Plan to the contrary, if Participant breaches a non-competition, non-solicitation, non-disclosure, non-disparagement or other restrictive covenant set forth in an Award Agreement or any other agreement between Participant and the Company, whether during or after Participant’s Termination of Service, in addition to and not in limitation of any other rights, remedies, damages, penalties or restrictions available to the Company under the Plan, an Award Agreement, any other agreement between Participant and the Company, or otherwise at law or in equity, Participant shall forfeit or pay to the Company:
(a)Any and all outstanding Awards granted to Participant, including Awards that have become vested or exercisable;
(b)Any Shares held by Participant in connection with the Plan that were acquired by Participant after Participant’s Termination of Service and within the 12-month period immediately preceding Participant’s Termination of Service;
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(c)The profit realized by Participant from the exercise of any stock options and SARs that Participant exercised after Participant’s Termination of Service and within the 12-month period immediately preceding Participant’s Termination of Service, which profit is the difference between the exercise price of the stock option or SAR and the Fair Market Value of any Shares or cash acquired by Participant upon exercise of such stock option or SAR; and
(d)The profit realized by Participant from the sale, or other disposition for consideration, of any Shares received by Participant in connection with the Plan after Participant’s Termination of Service and within the 12-month period immediately preceding Participant’s Termination of Service and where such sale or disposition occurs in such similar time period.
Section 18.Offset. The Company shall have the right to offset, from any amount payable or stock deliverable hereunder, any amount that Participant owes to the Company without the consent of Participant or any individual with a right to Participant’s Award
Section 19.Effect on Other Agreements. The foregoing provisions of Section 14 (Nonsolicitation of Clients), Section 15 (Protection of Leadership Pool), and Section 16 (Confidentiality) shall not be construed to supersede or alleviate any obligations of Participant to the Company with respect to any restrictive covenant, non-compete or confidentiality agreement otherwise binding on Participant, which shall remain in full force and effect to the extent provided in any such agreements, and in the event that a provision of such agreement shall conflict with any provision of this Award Agreement, Participant acknowledges and agrees that the provision which is most protective of the Company’s confidential or proprietary interests shall control. Notwithstanding the foregoing, the provisions of Section 14, Section 15 and Section 16 shall supersede and replace any similar restrictions included in previous Award Agreements.
Section 20.Notices. Any notice hereunder to the Company shall be addressed to it at its office, 401 Charmany Drive, Madison, WI 53719; Attention: Corporate Secretary, and any notice hereunder to Participant shall be addressed to him or her at the last home address on file with the Company. Either party may designate some other address at any time hereafter in writing.
Section 21.Severability. In the event any provision of the Agreement is held illegal or invalid for any reason, the illegality or invalidity will not affect the remaining provisions of the Agreement, and the Agreement shall be construed and enforced as if the illegal or invalid provision had not been included.
Section 22.New Employers. While Participant is employed by the Company and for a period of twelve (12) months immediately following the date Participant ceases to be an employee of the Company, Participant will inform each new employer, prior to accepting employment, of the existence of this Agreement, including the prohibitions contained in Section 14, Section 15 and Section 16 and provide that employer with a copy of it. Participant authorizes the Company to forward a copy of the prohibitions against competition as contained in this section to any actual or prospective new employer.
Section 23.Waiver of Jury Trial. EXCEPT TO THE EXTENT PROHIBITED BY STATE LAW, BY SIGNING THIS AGREEMENT, EACH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL ACTION, PROCEEDING, CAUSE OF ACTION OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, INCLUDING ANY EXHIBITS, SCHEDULES, AND APPENDICES ATTACHED TO THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT
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(A) NO REPRESENTATIVE OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (B) IT HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) IT MAKES THIS WAIVER KNOWINGLY AND VOLUNTARILY, AND (D) IT HAS DECIDED TO ENTER INTO THIS AGREEMENT IN CONSIDERATION OF, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
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IN WITNESS WHEREOF, the Company has caused this Award Agreement to be executed in its name and on its behalf, and Participant acknowledges understanding and acceptance of, and agrees to, the terms of this Award Agreement (including, but not limited to, the Waiver of Jury Trial provision set forth in Section 23), all as of the Grant Date.
    FIRST BUSINESS FINANCIAL SERVICES, INC.
    By:         
    Print Name:     
    Title:     
    PARTICIPANT
        
    Print Name:     






Exhibit A
Performance-Based Restricted Stock Unit
Performance Goals
Performance Goals and Vesting Percentages
Performance Goal Weighting Threshold Target Maximum Actual Performance Result Achievement Percentage*
[Relative Return on Average Equity] 50% 50% 100% 200% [__]% [__]%
[Relative Total Shareholder Return] 50% 50% 100% 200% [__]% [__]%
Total Performance-Based RSU Vesting as a percentage of the Target Award [__]%
*Achievement of each performance goal to be determined by straight-line interpolation for actual performance falling between threshold and target or target and maximum levels. If achievement with respect to a particular performance goal does not reach threshold level, then no portion of the award will vest with respect to such performance goal.

Performance-Based RSU Award Opportunities (as % of Target Award)
Attainment Level [Relative Return on Average Equity] [Relative Total Shareholder Return]
Threshold 50% 50%
Target 100% 100%
Maximum 200% 200%

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Exhibit 10.5
FIRST BUSINESS FINANCIAL SERVICES, INC.
2019 EQUITY INCENTIVE PLAN
RESTRICTED STOCK UNIT AWARD AGREEMENT – EXECUTIVE OFFICER

The Participant specified below is hereby granted a restricted stock unit award (the “Award”) by First Business Financial Services, Inc., a Wisconsin corporation (the “Company”), under the First Business Financial Services, Inc. 2019 Equity Incentive Plan (the “Plan”) in exchange for the cancellation of the Participant’s restricted award agreement dated _____________ and the cancellation of the shares issued thereunder that have not yet vested as of the Grant Date. The Award shall be subject to the terms of the Plan and the terms set forth in this Restricted Stock Unit Award Agreement (“Award Agreement”).
Section 1.Award. The Company hereby grants to Participant the Award of restricted stock units (each such unit, an “RSU”), where each RSU represents the right of Participant to receive one Share in the future upon the expiration of the Restricted Period, subject to the terms of this Award Agreement and the Plan.
Section 2.Terms of Restricted Stock Unit Award. The following words and phrases relating to the Award shall have the following meanings:
(a)The “Participant” is ______________________________.
(b)The “Grant Date” is ______________________________.
(c)The number of RSUs is ______________________.
Except for words and phrases otherwise defined in this Award Agreement, any capitalized word or phrase in this Award Agreement shall have the meaning ascribed to it in the Plan.
Section 3.Restricted Period.

(a)The “Restricted Period” for thirty-three percent (33%) of the RSUs will end on each of the first two (2) anniversaries of the Grant Date and thirty-four (34%) of the Covered Shares will end on the third (3rd) anniversary.
(b)Notwithstanding the foregoing provisions of this Section 3, the Restricted Period for all the RSUs shall cease immediately and such RSUs shall become fully vested immediately upon Participant’s Termination of Service due to Participant’s Disability or Participant’s death.
(c)Except as set forth in Section 3(b) and 3(d), or as may otherwise be provided by the Committee, if Participant’s Termination of Service occurs prior to the expiration of one or more Restricted Periods, Participant shall forfeit all rights, title and interest in and to any RSUs still subject to a Restricted Period as of such Termination of Service.
(d)Notwithstanding the foregoing provisions of this Section 3 or any other agreement to the contrary between Participant and the Company, if Participant incurs a Termination of Service as a result of Retirement after the first anniversary of the Grant Date, then the RSUs shall not be forfeited as a result of such Retirement and shall continue to vest for as long as Participant remains Retired.



(i)Retirement” means a Termination of Service on or after the date on which Participant has achieved age sixty (60) with at least ten (10) years of service in a senior executive capacity with the Company; provided that Participant provides at least twelve (12) months’ notice to the Company’s Chief Executive Officer (or, if Participant is the Company’s Chief Executive Officer, to the Board) prior to such Retirement.
(ii)Following Retirement, Participant shall be “Retired” so long as Participant does not (x) directly, or indirectly through another, act as an officer, director, partner or employee of or consultant to, or act in any managerial capacity with, any entity that is engaged in the financial services industry or (y) act in any full-time position with any other entity if such position requires duties and responsibilities similar to the duties and responsibilities of Participant with the Company prior to Retirement.
(iii)Whether Participant remains Retired at any time shall be determined by the Board or the Committee in its sole discretion. If, while this Award is outstanding, Participant commences employment or other work of any kind following Retirement, then Participant is required to promptly provide written notice to the Company of the name of his or her employer and the nature of his or her position or other work. In addition, as a condition for this Award to remain outstanding following Retirement, the Company will require Participant to provide information relating to his or her activities following Retirement prior to each vesting date to enable the Board or the Committee to determine whether Participant remains Retired, and Participant’s failure to provide such information upon request will cause the Award to be forfeited.
(iv)If Participant receives any benefit under this Award after Retirement but when he or she is no longer Retired, then Participant will be obligated to repay to the Company the value of such benefit (with such value to be determined by the Company, which may include a reasonable rate of interest) promptly following receipt from the Company of notice to Participant of his or her repayment obligation.
Section 4.Settlement of RSUs. Delivery of Shares or other amounts under this Award Agreement and the Plan shall be subject to the following:
(a)Delivery of Shares. The Company shall deliver to Participant one Share free and clear of any restrictions in settlement of each of the vested and unrestricted RSUs within 45 days following the end of the respective Restricted Period.
(b)Compliance with Applicable Laws. Notwithstanding any other term of this Award Agreement or the Plan, the Company shall have no obligation to deliver any Shares or make any other distribution of benefits under this Award Agreement or the Plan unless such delivery or distribution complies with all applicable laws and the applicable rules of any securities exchange or similar entity.
(c)Certificates Not Required. To the extent that this Award Agreement and the Plan provide for the issuance of Shares, such issuance may be effected on a non-certificated basis, to the extent not prohibited by applicable law or the applicable rules of any securities exchange or similar entity.
Section 5.Dividend Equivalents. Participant shall receive a cash payment equivalent to any dividends or other distributions paid with respect to the Shares subject to the RSUs, so long as the applicable record date occurs before such RSUs are forfeited or cancelled. Such cash payment shall be paid to Participant (or Participant’s beneficiary in accordance with Section 7) at the same time as the
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dividend or other distribution is paid to Shareholders. If, however, any dividends or distributions with respect to the Shares underlying the RSUs are paid in Shares rather than cash, then Participant shall be credited with additional RSUs equal to the number of Shares that Participant would have received had the RSUs been actual Shares, and such RSUs shall be deemed RSUs added to the Award subject to the same risk of forfeiture and other terms of this Agreement.
Section 6.No Shareholder Rights. Participant shall not have any rights of a Shareholder with respect to the RSUs, including but not limited to, voting rights, prior to settlement of the RSUs pursuant to Section 4(a) above.
Section 7.Heirs and Successors. This Award Agreement shall be binding upon, and inure to the benefit of, the Company and its successors and assigns, and upon any person acquiring all or substantially all of the Company’s assets or business. If any rights of Participant or benefits distributable to Participant under this Award Agreement have not been settled or distributed at the time of Participant’s death, such rights shall be settled for and such benefits shall be distributed to the Designated Beneficiary in accordance with the provisions of this Award Agreement and the Plan. The “Designated Beneficiary” shall be the beneficiary or beneficiaries designated by Participant in a writing filed with the Committee in such form as the Committee may require. Participant’s designation of beneficiary may be amended or revoked from time to time by Participant in accordance with any procedures established by the Committee. If a Participant fails to designate a beneficiary, or if the Designated Beneficiary does not survive Participant, any benefits that would have been provided to Participant shall be provided to the legal representative of the estate of Participant. If a Participant designates a beneficiary and the Designated Beneficiary survives Participant but dies before the provision of the Designated Beneficiary’s benefits under this Award Agreement, then any benefits that would have been provided to the Designated Beneficiary shall be provided to the legal representative of the estate of the Designated Beneficiary.
Section 8.Administration. The authority to manage and control the operation and administration of this Award Agreement and the Plan shall be vested in the Committee, and the Committee shall have all powers with respect to this Award Agreement as it has with respect to the Plan. Any interpretation of this Award Agreement or the Plan by the Committee and any decision made by the Committee with respect to this Award Agreement or the Plan shall be final and binding on all persons.
Section 9.Plan Governs. Notwithstanding any provision of this Award Agreement to the contrary, this Award Agreement shall be subject to the terms of the Plan, a copy of which may be obtained by Participant from the office of the secretary of the Company. This Award Agreement shall be subject to all interpretations, amendments, rules and regulations promulgated by the Committee from time to time. Notwithstanding any provision of this Award Agreement to the contrary, in the event of any discrepancy between the corporate records of the Company, including the Plan, and this Award Agreement, the corporate records of the Company shall control.
Section 10.Not an Employment Contract. Neither the Award nor this Award Agreement shall confer on Participant any rights with respect to continuance of employment or other service with the Company or a Subsidiary, nor shall they interfere in any way with any right the Company or a Subsidiary may otherwise have to terminate or modify the terms of Participant’s employment or other service at any time.
Section 11.Amendment. Without limitation of Section 13 below, this Award Agreement may be amended in accordance with the provisions of the Plan and may otherwise be amended in writing by Participant and the Company without the consent of any other person.
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Section 12.Governing Law. This Award Agreement, the Plan and all actions taken in connection herewith and therewith shall be governed by and construed in accordance with the laws of the State of Wisconsin, without reference to principles of conflict of laws, except as superseded by applicable federal law; and any court action commenced to enforce this Agreement shall have as its sole and exclusive venue the County of Dane, Wisconsin.
Section 13.Clawback. The Award and any amount or benefit received under the Plan shall be subject to potential cancellation, recoupment, rescission, payback or other action in accordance with the terms of any applicable Company clawback policy (the “Policy”) or any applicable law, as may be in effect from time to time. Participant hereby acknowledges and consents to the Company’s application, implementation and enforcement of (a) the Policy and any similar policy established by the Company that may apply to Participant together with all other similarly situated participants, whether adopted prior to or following the date of this Award Agreement and (b) any provision of applicable law relating to cancellation, rescission, payback or recoupment of compensation, and agrees that the Company may take such actions as may be necessary to effectuate the Policy, any similar policy and applicable law, without further consideration or action.
Section 14.Nonsolicitation of Clients.
(a)While Participant is employed by the Company and for a period of twelve (12) months immediately following, Participant will not, except on behalf of or as otherwise directed by the Company, directly or indirectly (through or by providing assistance to another person or entity), solicit Financial Services (defined below) business from any client of the Company who/which was a client of the Company and (1) with whom/which Participant had any contact or (2) about whom/which Participant had access to non-public confidential or proprietary information, in the case of both (1) and (2), above, during the period of one year prior to the date Participant ceased to be an employee of the Company.
(b)While Participant is employed by the Company, and for a period of twelve (12) months immediately following, Participant will not, except on behalf of or as otherwise directed by the Company, conduct business relating to Financial Services (defined below) with any client of the Company who/which was a client of the Company and (1) with whom/which Participant had any contact or (2) about whom/which Participant had access to non-public confidential or proprietary information, in the case of both (1) and (2), above, during the period of one year prior to the date Participant ceased to be an employee of the Company.
(c)While Participant is employed by the Company, and for a period of six (6) months immediately following, Participant will not, except on behalf of or as otherwise directed by the Company, directly or indirectly (through or by providing assistance to another person or entity), solicit Financial Services (defined below) business from any prospective client of the Company with whom/which the Company engaged in direct marketing efforts (as opposed to general solicitations of business) and (1) with whom/which Participant had any contact or (2) about whom/which Participant had access to non-public confidential or proprietary information, in the case of both (1) and (2), above, during the period of one year prior to the date Participant ceased to be an employee of the Company.
(d)For clarification purposes, the restrictions described in the above subparagraphs apply to clients whether they are persons or entities. The term “Financial Services” as used herein shall mean products and/or services offered by the Company within the twelve (12) month period immediately preceding Participant’s last day of employment with the Company.
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(e)These covenants are effective immediately and shall remain in force before and after the time the rights to the RSUs granted under this Agreement vest, and after such RSUs are issued to or transferred by Participant. The parties intend that this Section 14 and each and all of its individual subparagraphs, provisions, and clauses are severable from any other provision of this agreement, as provided in Section 21, and are also severable from any other promise or duty owed by Participant to the Company.
(f)Participant agrees that each of these covenants is reasonably and properly necessary to protect the legitimate business interests of the Company. Participant acknowledges that damages for the violation of any of these covenants will be inadequate and will not give full, sufficient relief to the Company, and that a breach of any of these covenants will constitute irreparable harm to the Company. Therefore, Participant agrees that in the event of any violation of any of these covenants, the Company shall be entitled to compensatory damages and injunctive relief.
(g)Participant will reimburse and indemnify the Company for the actual costs incurred by the Company in enforcing any of these covenants, including, but not limited to, attorney’s fees reasonably incurred in enforcement activity.
Section 15.Protection of Leadership Pool. Participant and the Company agree to the following:
(a)Participant is a top-level employee of the Company or has special skills or knowledge important to the Company or has skills that are difficult for the Company to replace.
(b)Participant’s colleagues who are employed by the Company in a position of officer or manager, or above (collectively, the “Leadership Pool”) are likewise top-level employees of the Company or have special skills or knowledge important to the Company or have skills that are difficult for the Company to replace.
(c)If Participant or any member of the Leadership Pool ceases to be so employed, the Company will have a business necessity to replace the skills lost.
(d)It takes time after an employee of the caliber of Participant and/or the Leadership Pool leaves the employ of the Company to replace the skills lost; 180 days is a reasonable measure of the time needed to replace such skills.
(e)A primary and necessary source of replacement of the skills of Participant and/or a member of the Leadership Pool are the other members of the Leadership Pool.
(f)The parties recognize that employees of the Company (not otherwise bound by contract) are not in any way restricted from competing with the Company, and are not obligated to accept, nor even to consider, proposals by the Company that they replace Participant or a member of the Leadership Pool in the event Participant or a member of the Leadership Pool leaves the Company.
(g)Because of Participant’s present position, Participant is in a position to assist and influence those members of the Leadership Pool with whom Participant has or had a working relationship during the immediately preceding two (2) years, or about whom/which Participant has acquired or possessed specialized knowledge (in either case, a “Restricted Person”) in choosing whether to remain with the Company and consider or accept other positions with the Company rather than choosing to seek other opportunities outside the Company. Any suggestion by Participant that a Restricted Person should seek another employment opportunity outside the Company, and any offer of another employment
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opportunity by another employer to a Restricted Person with the assistance of Participant, would be such assistance and influence, in derogation of Participant’s duty to the Company as a managerial and supervisory employee.
(h)The monetary value of the loss to the Company in case Participant in fact assists or influences a Restricted Person to leave the Company for a competitor would be impossible to precisely measure. Injunctive relief for a breach of subsection (j) would also be ineffective.
(i)The parties agree that a fair estimate of the monetary value of the loss to the Company in case Participant assists or influences another employee to leave the Company for a competitor would be Participant’s daily rate of base pay as of the last day he or she was employed by the Company times 180.
(j)In consideration of this Agreement, and of the continued employment of Participant by the Company, Participant agrees that Participant will not, directly or through another, during Participant’s employment and for a period of one (1) year thereafter, assist or influence any Restricted Person to take a position outside the Company which is reasonably likely to pose a competitive threat to the Company.
(k)In the event of a breach by Participant of subsection (j), the stipulated damages for such breach are agreed to be Participant’s daily rate of base pay as of the time he or she leaves the Company times 180. This provision for stipulated damages is intended to be and is severable from the substantive obligation in subsection (j), and from the other provisions of this Agreement.
(l)Subsections (j) and (k) are solely for the purposes stated in subsections (a) through (k), and are not for the purpose of limiting the ability of Participant to compete with the Company.
(m)Participant and the Company intend that the promise by Participant in subsection (j) is separate and separable from any other obligation of Participant, and for a different purpose, and with a different remedy from the promise of Participant not to solicit or conduct business with certain clients or to disclose Confidential Information or Trade Secrets of the Company, under Section 14 and Section 16, respectively.
(n)This Section 15 is effective immediately and remains in force before and after the time the rights to the RSUs granted under this Agreement vest, and after such RSUs are issued to or transferred by Participant.
(o)Participant will reimburse and indemnify the Company for the actual costs incurred by the Company in enforcing these covenants, including, but not limited to, attorney’s fees reasonably incurred in enforcement activity.
Section 16.Confidentiality. In consideration of this Agreement, Participant agrees to the following:
(a)During the term of Participant’s employment, Participant has been, and will continue to be, provided with Trade Secrets and/or Confidential Information. This information has been developed at great expense to Company and is necessary for Company to conduct its business.
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(b)While Participant is employed by Company, Participant will not directly or indirectly use or disclose any Trade Secret or Confidential Information, except in the interest and for the benefit of Company.
(c)After the termination of Participant’s employment with Company for any reason, Participant will not directly or indirectly use or disclose any Trade Secret.
(d)For a period of twenty-four (24) months following the termination of Participant’s employment with Company for any reason, Participant will not directly or indirectly use or disclose any Confidential Information. This confidentiality provision is not intended in any way to modify or limit Participant’s ongoing duty to maintain the confidentiality of information as required under federal and state laws and regulations.
(e)For purposes of this Agreement, the term “Trade Secret” has that meaning set forth under applicable law. Participant shall not disclose any information that constitutes a trade secret as defined in § 134.90, Wis. Stats. for as long as the information continues to be a trade secret or any information where disclosure is otherwise restricted by federal, state or local laws and regulations.
(f)For purposes of this Agreement, the term “Confidential Information” means all non-Trade Secret information of, about or related to Company or provided to Company by its clients, vendors and suppliers that is not known generally to the public or Company’s competitors. Confidential Information includes, but is not limited to: (i) new products, product specifications, information about products under development, research, development or business plans, financial information, client lists, vendor or supplier lists, information about transactions with clients, pricing information, information relating to costs, business records, and employment records and policies (other than Participant’s own); (ii) information that is marked or otherwise designated or treated as confidential or proprietary by Company; and (iii) information received by Company from others which Company has an obligation to treat as confidential.
(g)Notwithstanding the foregoing, the terms “Confidential Information” and “Trade Secret” do not include, and the obligations set forth in this Agreement do not apply to, any information that: (1) can be demonstrated by Participant to have been known by Participant prior to Participant’s employment by Company; (2) is or becomes generally available to the public through no act or omission of Participant; (3) is obtained by Participant in good faith from a third party who discloses such information to Participant on a non-confidential basis without violating any obligation of confidentiality or secrecy relating to the information disclosed; or (4) is independently developed by Participant outside the scope of Participant’s employment without the use of Confidential Information or Trade Secrets. Nothing in this Agreement shall limit or supersede any common law, statutory or other protections of trade secrets where such protections provide the Company with greater rights or protections for a longer duration than provided in this Agreement. With respect to the disclosure of a Trade Secret and in accordance with 18 U.S.C. § 1833, Participant shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a Trade Secret that (i) is made in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, provided that, the information is disclosed solely for the purpose of reporting or investigating a suspected violation of law; or (ii) is made in a complaint or other document filed in a lawsuit or other proceeding filed under seal so that it is not disclosed to the public. Participant is further notified that if Participant files a lawsuit for retaliation by the Company for reporting a suspected violation of law, Participant may disclose the Company’s Trade Secrets to Participant’s attorney and use the Trade Secret information in the court proceeding, provided that Participant files any document containing the Trade Secret under seal so that it is not disclosed to the public, and does not disclose the Trade Secret, except pursuant to court order.
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(h)These covenants are effective immediately and shall remain in force before and after the time the rights to the RSUs granted under this Agreement vest, and after such RSUs are issued to or transferred by Participant. The parties intend that this Section 16 and each and all of its individual subparagraphs, provisions, and clauses are severable from any other provision of this agreement, as provided in Section 21, and are also severable from any other promise or duty owed by Participant to the Company.
(i)Participant agrees that each of these covenants is reasonably and properly necessary to protect the legitimate business interests of the Company. Participant acknowledges that damages for the violation of any of these covenants will be inadequate and will not give full, sufficient relief to the Company, and that a breach of any of these covenants will constitute irreparable harm to the Company. Therefore, Participant agrees that in the event of any violation of any of these covenants, the Company shall be entitled to compensatory damages and injunctive relief.
(j)Participant will reimburse and indemnify the Company for the actual costs incurred by the Company in enforcing any of these covenants, including, but not limited to, attorney’s fees reasonably incurred in enforcement activity.
(k)Notwithstanding anything herein to the contrary, in accordance with Rule 21F-17 under the Securities Exchange Act of 1934 and the rules promulgated thereunder, the Company shall not impede a Participant’s ability to communicate with the Securities and Exchange Commission or other governmental agencies regarding possible federal securities law violations (1) without the Company’s approval and (2) without having to forfeit or forego any resulting whistleblower awards, and the Company shall not enforce any provision of any policy to the extent such provision would be deemed to require the Company’s prior approval of such communication or forfeiture of any award, except to the extent otherwise permitted by Rule 21F-17.
Section 17.Breach of Restrictive Covenants. Except as otherwise provided by the Committee, notwithstanding any provision of the Plan to the contrary, if Participant breaches a non-competition, non-solicitation, non-disclosure, non-disparagement or other restrictive covenant set forth in an Award Agreement or any other agreement between Participant and the Company, whether during or after Participant’s Termination of Service, in addition to and not in limitation of any other rights, remedies, damages, penalties or restrictions available to the Company under the Plan, an Award Agreement, any other agreement between Participant and the Company, or otherwise at law or in equity, Participant shall forfeit or pay to the Company:
(a)Any and all outstanding Awards granted to Participant, including Awards that have become vested or exercisable;
(b)Any Shares held by Participant in connection with the Plan that were acquired by Participant after Participant’s Termination of Service and within the 12-month period immediately preceding Participant’s Termination of Service;
(c)The profit realized by Participant from the exercise of any stock options and SARs that Participant exercised after Participant’s Termination of Service and within the 12-month period immediately preceding Participant’s Termination of Service, which profit is the difference between the exercise price of the stock option or SAR and the Fair Market Value of any Shares or cash acquired by Participant upon exercise of such stock option or SAR; and
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(d)The profit realized by Participant from the sale, or other disposition for consideration, of any Shares received by Participant in connection with the Plan after Participant’s Termination of Service and within the 12-month period immediately preceding Participant’s Termination of Service and where such sale or disposition occurs in such similar time period.
Section 18.Offset. The Company shall have the right to offset, from any amount payable or stock deliverable hereunder, any amount that Participant owes to the Company without the consent of Participant or any individual with a right to Participant’s Award
Section 19.Effect on Other Agreements. The foregoing provisions of Section 14 (Nonsolicitation of Clients), Section 15 (Protection of Leadership Pool), and Section 16 (Confidentiality) shall not be construed to supersede or alleviate any obligations of Participant to the Company with respect to any restrictive covenant, non-compete or confidentiality agreement otherwise binding on Participant, which shall remain in full force and effect to the extent provided in any such agreements, and in the event that a provision of such agreement shall conflict with any provision of this Award Agreement, Participant acknowledges and agrees that the provision which is most protective of the Company’s confidential or proprietary interests shall control. Notwithstanding the foregoing, the provisions of Section 14, Section 15 and Section 16 shall supersede and replace any similar restrictions included in previous Award Agreements.
Section 20.Notices. Any notice hereunder to the Company shall be addressed to it at its office, 401 Charmany Drive, Madison, WI 53719; Attention: Corporate Secretary, and any notice hereunder to Participant shall be addressed to him or her at the last home address on file with the Company. Either party may designate some other address at any time hereafter in writing.
Section 21.Severability. In the event any provision of the Agreement is held illegal or invalid for any reason, the illegality or invalidity will not affect the remaining provisions of the Agreement, and the Agreement shall be construed and enforced as if the illegal or invalid provision had not been included.
Section 22.New Employers. While Participant is employed by the Company and for a period of twelve (12) months immediately following the date Participant ceases to be an employee of the Company, Participant will inform each new employer, prior to accepting employment, of the existence of this Agreement, including the prohibitions contained in Section 14, Section 15 and Section 16 and provide that employer with a copy of it. Participant authorizes the Company to forward a copy of the prohibitions against competition as contained in this section to any actual or prospective new employer.
Section 23.Waiver of Jury Trial. EXCEPT TO THE EXTENT PROHIBITED BY STATE LAW, BY SIGNING THIS AGREEMENT, EACH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL ACTION, PROCEEDING, CAUSE OF ACTION OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, INCLUDING ANY EXHIBITS, SCHEDULES, AND APPENDICES ATTACHED TO THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (B) IT HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) IT MAKES THIS WAIVER KNOWINGLY AND VOLUNTARILY, AND (D) IT HAS DECIDED TO ENTER INTO THIS AGREEMENT IN CONSIDERATION OF, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
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IN WITNESS WHEREOF, the Company has caused this Award Agreement to be executed in its name and on its behalf, and Participant acknowledges understanding and acceptance of, and agrees to, the terms of this Award Agreement (including, but not limited to, the Waiver of Jury Trial provision set forth in Section 23), all as of the Grant Date.
    FIRST BUSINESS FINANCIAL SERVICES, INC.
    By:         
    Print Name:     
    Title:     
    PARTICIPANT
        
    Print Name:     

Exhibit 10.6
FIRST BUSINESS FINANCIAL SERVICES, INC.
2019 EQUITY INCENTIVE PLAN
PERFORMANCE-BASED RESTRICTED STOCK UNIT AWARD AGREEMENT
EXECUTIVE OFFICER

The Participant specified below is hereby granted a performance-based restricted stock unit award (the “Award”) by First Business Financial Services, Inc., a Wisconsin corporation (the “Company”), under the First Business Financial Services, Inc. 2019 Equity Incentive Plan (the “Plan”). The Award shall be subject to the terms of the Plan and the terms set forth in this Performance-Based Restricted Stock Unit Award Agreement (“Award Agreement”).
Section 1.Award. The Company hereby grants to Participant the Award of restricted stock units (each such unit, an “RSU”), where each RSU represents the right of Participant to receive one Share in the future upon the expiration of the Performance Period, subject to the terms of this Award Agreement and the Plan.
Section 2.Terms of Restricted Stock Unit Award. The following words and phrases relating to the Award shall have the following meanings:
(a)The “Participant” is ______________________________.
(b)The “Grant Date” is ______________________________.
(c)The target number of RSUs is _________________________.
(d)The maximum number of RSUs is ______________________.
(e)The “Performance Period” begins on _________________ and concludes on ___________________.
Except for words and phrases otherwise defined in this Award Agreement, any capitalized word or phrase in this Award Agreement shall have the meaning ascribed to it in the Plan.
Section 3.Performance Measurement.

(a)The Committee shall establish one or more performance goals for each Performance Period, which may consist of business criteria or other metrics (the “Performance Goals”). The Performance Goals are set forth on Exhibit A hereto. Upon the expiration of the Performance Period, the Committee shall have the sole discretion to determine the level of achievement of the Performance Goals and, in accordance with Exhibit A, the number of RSUs, if any, that Participant has earned.
(b)Except as set forth below in Section 3(c) and Section 3(d) or as may otherwise be provided by the Committee, if Participant’s Termination of Service occurs prior to the expiration of the Performance Period, Participant shall forfeit all rights, title and interest in and to any RSUs subject to the Performance Period.
(c)Notwithstanding the foregoing provisions of this Section 3, if Participant incurs a Termination of Service due to Disability or death, the RSUs shall become fully vested on the date of termination at the level of target performance.
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(d)Notwithstanding the foregoing provisions of this Section 3 or any other agreement to the contrary between Participant and the Company, if Participant incurs a Termination of Service as a result of Retirement after the first anniversary of the Grant Date, then the RSUs shall not be forfeited as a result of such Retirement and shall continue to vest for as long as Participant remains Retired. Participant’s RSUs earned shall be prorated based on Participant’s retirement date.
(i)Retirement” means a Termination of Service on or after the date on which Participant has achieved age sixty (60) with at least ten (10) years of service in a senior executive capacity with the Company; provided that Participant provides at least twelve (12) months’ notice to the Company’s Chief Executive Officer (or, if Participant is the Company’s Chief Executive Officer, to the Board) prior to such Retirement.
(ii)Following Retirement, Participant shall be “Retired” so long as Participant does not (x) directly, or indirectly through another, act as an officer, director, partner or employee of or consultant to, or act in any managerial capacity with, any entity that is engaged in the financial services industry or (y) act in any full-time position with any other entity if such position requires duties and responsibilities similar to the duties and responsibilities of Participant with the Company prior to Retirement.
(iii)Whether Participant remains Retired at any time shall be determined by the Board or the Committee in its sole discretion. If, while this Award is outstanding, Participant commences employment or other work of any kind following Retirement, then Participant is required to promptly provide written notice to the Company of the name of his or her employer and the nature of his or her position or other work. In addition, as a condition for this Award to remain outstanding following Retirement, the Company will require Participant to provide information relating to his or her activities following Retirement prior to each vesting date to enable the Board or the Committee to determine whether Participant remains Retired, and Participant’s failure to provide such information upon request will cause the Award to be forfeited.
(iv)If Participant receives any benefit under this Award after Retirement but when he or she is no longer Retired, then Participant will be obligated to repay to the Company the value of such benefit (with such value to be determined by the Company, which may include a reasonable rate of interest) promptly following receipt from the Company of notice to Participant of his or her repayment obligation.
Section 4.Settlement of RSUs. Delivery of Shares or other amounts under this Award Agreement and the Plan shall be subject to the following:
(a)Delivery of Shares. The Company shall deliver to Participant one Share free and clear of any restrictions in settlement of each of the vested and unrestricted RSUs within 75 days following the end of the respective Performance Period.
(b)Compliance with Applicable Laws. Notwithstanding any other term of this Award Agreement or the Plan, the Company shall have no obligation to deliver any Shares or make any other distribution of benefits under this Award Agreement or the Plan unless such delivery or distribution complies with all applicable laws and the applicable rules of any securities exchange or similar entity.
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(c)Certificates Not Required. To the extent that this Award Agreement and the Plan provide for the issuance of Shares, such issuance may be effected on a non-certificated basis, to the extent not prohibited by applicable law or the applicable rules of any securities exchange or similar entity.
Section 5.Dividend Equivalents. Participant shall receive a cash payment equivalent to any dividends or other distributions paid with respect to the Shares subject to the RSUs at the target level, so long as the applicable record date occurs before such RSUs are forfeited or cancelled. Such cash payment shall be paid to Participant (or Participant’s beneficiary in accordance with Section 7) at the same time as the dividend or other distribution is paid to Shareholders. If, however, any dividends or distributions with respect to the Shares underlying the RSUs are paid in Shares rather than cash, then Participant shall be credited with additional RSUs equal to the number of Shares that Participant would have received had the RSUs been actual Shares at target level, and such RSUs shall be deemed RSUs added to the Award subject to the same risk of forfeiture and other terms of this Agreement.
Section 6.No Shareholder Rights. Participant shall not have any rights of a Shareholder with respect to the RSUs, including but not limited to, voting rights, prior to settlement of the RSUs pursuant to Section 4(a) above.
Section 7.Heirs and Successors. This Award Agreement shall be binding upon, and inure to the benefit of, the Company and its successors and assigns, and upon any person acquiring all or substantially all of the Company’s assets or business. If any rights of Participant or benefits distributable to Participant under this Award Agreement have not been settled or distributed at the time of Participant’s death, such rights shall be settled for and such benefits shall be distributed to the Designated Beneficiary in accordance with the provisions of this Award Agreement and the Plan. The “Designated Beneficiary” shall be the beneficiary or beneficiaries designated by Participant in a writing filed with the Committee in such form as the Committee may require. Participant’s designation of beneficiary may be amended or revoked from time to time by Participant in accordance with any procedures established by the Committee. If a Participant fails to designate a beneficiary, or if the Designated Beneficiary does not survive Participant, any benefits that would have been provided to Participant shall be provided to the legal representative of the estate of Participant. If a Participant designates a beneficiary and the Designated Beneficiary survives Participant but dies before the provision of the Designated Beneficiary’s benefits under this Award Agreement, then any benefits that would have been provided to the Designated Beneficiary shall be provided to the legal representative of the estate of the Designated Beneficiary.
Section 8.Administration. The authority to manage and control the operation and administration of this Award Agreement and the Plan shall be vested in the Committee, and the Committee shall have all powers with respect to this Award Agreement as it has with respect to the Plan. Any interpretation of this Award Agreement or the Plan by the Committee and any decision made by the Committee with respect to this Award Agreement or the Plan shall be final and binding on all persons.
Section 9.Plan Governs. Notwithstanding any provision of this Award Agreement to the contrary, this Award Agreement shall be subject to the terms of the Plan, a copy of which may be obtained by Participant from the office of the secretary of the Company. This Award Agreement shall be subject to all interpretations, amendments, rules and regulations promulgated by the Committee from time to time. Notwithstanding any provision of this Award Agreement to the contrary, in the event of any discrepancy between the corporate records of the Company, including the Plan, and this Award Agreement, the corporate records of the Company shall control.
Section 10.Not an Employment Contract. Neither the Award nor this Award Agreement shall confer on Participant any rights with respect to continuance of employment or other service with the
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Company or a Subsidiary, nor shall they interfere in any way with any right the Company or a Subsidiary may otherwise have to terminate or modify the terms of Participant’s employment or other service at any time.
Section 11.Amendment. Without limitation of Section 13 below, this Award Agreement may be amended in accordance with the provisions of the Plan and may otherwise be amended in writing by Participant and the Company without the consent of any other person.
Section 12.Governing Law. This Award Agreement, the Plan and all actions taken in connection herewith and therewith shall be governed by and construed in accordance with the laws of the State of Wisconsin, without reference to principles of conflict of laws, except as superseded by applicable federal law; and any court action commenced to enforce this Agreement shall have as its sole and exclusive venue the County of Dane, Wisconsin.
Section 13.Clawback. The Award and any amount or benefit received under the Plan shall be subject to potential cancellation, recoupment, rescission, payback or other action in accordance with the terms of any applicable Company clawback policy (the “Policy”) or any applicable law, as may be in effect from time to time. Participant hereby acknowledges and consents to the Company’s application, implementation and enforcement of (a) the Policy and any similar policy established by the Company that may apply to Participant together with all other similarly situated participants, whether adopted prior to or following the date of this Award Agreement and (b) any provision of applicable law relating to cancellation, rescission, payback or recoupment of compensation, and agrees that the Company may take such actions as may be necessary to effectuate the Policy, any similar policy and applicable law, without further consideration or action.
Section 14.Nonsolicitation of Clients.
(a)While Participant is employed by the Company and for a period of twelve (12) months immediately following, Participant will not, except on behalf of or as otherwise directed by the Company, directly or indirectly (through or by providing assistance to another person or entity), solicit Financial Services (defined below) business from any client of the Company who/which was a client of the Company and (1) with whom/which Participant had any contact or (2) about whom/which Participant had access to non-public confidential or proprietary information, in the case of both (1) and (2), above, during the period of one year prior to the date Participant ceased to be an employee of the Company.
(b)While Participant is employed by the Company, and for a period of twelve (12) months immediately following, Participant will not, except on behalf of or as otherwise directed by the Company, conduct business relating to Financial Services (defined below) with any client of the Company who/which was a client of the Company and (1) with whom/which Participant had any contact or (2) about whom/which Participant had access to non-public confidential or proprietary information, in the case of both (1) and (2), above, during the period of one year prior to the date Participant ceased to be an employee of the Company.
(c)While Participant is employed by the Company, and for a period of six (6) months immediately following, Participant will not, except on behalf of or as otherwise directed by the Company, directly or indirectly (through or by providing assistance to another person or entity), solicit Financial Services (defined below) business from any prospective client of the Company with whom/which the Company engaged in direct marketing efforts (as opposed to general solicitations of business) and (1) with whom/which Participant had any contact or (2) about whom/which Participant had access to
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non-public confidential or proprietary information, in the case of both (1) and (2), above, during the period of one year prior to the date Participant ceased to be an employee of the Company.
(d)For clarification purposes, the restrictions described in the above subparagraphs apply to clients whether they are persons or entities. The term “Financial Services” as used herein shall mean products and/or services offered by the Company within the twelve (12) month period immediately preceding Participant’s last day of employment with the Company.
(e)These covenants are effective immediately and shall remain in force before and after the time the rights to the RSUs granted under this Agreement vest, and after such RSUs are issued to or transferred by Participant. The parties intend that this Section 14(e) and each and all of its individual subparagraphs, provisions, and clauses are severable from any other provision of this agreement, as provided in Section 21, and are also severable from any other promise or duty owed by Participant to the Company.
(f)Participant agrees that each of these covenants is reasonably and properly necessary to protect the legitimate business interests of the Company. Participant acknowledges that damages for the violation of any of these covenants will be inadequate and will not give full, sufficient relief to the Company, and that a breach of any of these covenants will constitute irreparable harm to the Company. Therefore, Participant agrees that in the event of any violation of any of these covenants, the Company shall be entitled to compensatory damages and injunctive relief.
(g)Participant will reimburse and indemnify the Company for the actual costs incurred by the Company in enforcing any of these covenants, including, but not limited to, attorney’s fees reasonably incurred in enforcement activity.
Section 15.Protection of Leadership Pool. Participant and the Company agree to the following:
(a)Participant is a top-level employee of the Company or has special skills or knowledge important to the Company or has skills that are difficult for the Company to replace.
(b)Participant’s colleagues who are employed by the Company in a position of officer or manager, or above (collectively, the “Leadership Pool”) are likewise top-level employees of the Company or have special skills or knowledge important to the Company or have skills that are difficult for the Company to replace.
(c)If Participant or any member of the Leadership Pool ceases to be so employed, the Company will have a business necessity to replace the skills lost.
(d)It takes time after an employee of the caliber of Participant and/or the Leadership Pool leaves the employ of the Company to replace the skills lost; 180 days is a reasonable measure of the time needed to replace such skills.
(e)A primary and necessary source of replacement of the skills of Participant and/or a member of the Leadership Pool are the other members of the Leadership Pool.
(f)The parties recognize that employees of the Company (not otherwise bound by contract) are not in any way restricted from competing with the Company, and are not obligated to accept, nor even to consider, proposals by the Company that they replace Participant or a member of the Leadership Pool in the event Participant or a member of the Leadership Pool leaves the Company.
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(g)Because of Participant’s present position, Participant is in a position to assist and influence those members of the Leadership Pool with whom Participant has or had a working relationship during the immediately preceding two (2) years, or about whom/which Participant has acquired or possessed specialized knowledge (in either case, a “Restricted Person”) in choosing whether to remain with the Company and consider or accept other positions with the Company rather than choosing to seek other opportunities outside the Company. Any suggestion by Participant that a Restricted Person should seek another employment opportunity outside the Company, and any offer of another employment opportunity by another employer to a Restricted Person with the assistance of Participant, would be such assistance and influence, in derogation of Participant’s duty to the Company as a managerial and supervisory employee.
(h)The monetary value of the loss to the Company in case Participant in fact assists or influences a Restricted Person to leave the Company for a competitor would be impossible to precisely measure. Injunctive relief for a breach of subsection (j) would also be ineffective.
(i)The parties agree that a fair estimate of the monetary value of the loss to the Company in case Participant assists or influences another employee to leave the Company for a competitor would be Participant’s daily rate of base pay as of the last day he or she was employed by the Company times 180.
(j)In consideration of this Agreement, and of the continued employment of Participant by the Company, Participant agrees that Participant will not, directly or through another, during Participant’s employment and for a period of one (1) year thereafter, assist or influence any Restricted Person to take a position outside the Company which is reasonably likely to pose a competitive threat to the Company.
(k)In the event of a breach by Participant of subsection (j), the stipulated damages for such breach are agreed to be Participant’s daily rate of base pay as of the time he or she leaves the Company times 180. This provision for stipulated damages is intended to be and is severable from the substantive obligation in subsection (j), and from the other provisions of this Agreement.
(l)Subsections (j) and (k) are solely for the purposes stated in subsections (a) through (k), and are not for the purpose of limiting the ability of Participant to compete with the Company.
(m)Participant and the Company intend that the promise by Participant in subsection (j) is separate and separable from any other obligation of Participant, and for a different purpose, and with a different remedy from the promise of Participant not to solicit or conduct business with certain clients or to disclose Confidential Information or Trade Secrets of the Company, under Section 14 and Section 16, respectively.
(n)This Section 15 is effective immediately and remains in force before and after the time the rights to the RSUs granted under this Agreement vest, and after such RSUs are issued to or transferred by Participant.
(o)Participant will reimburse and indemnify the Company for the actual costs incurred by the Company in enforcing these covenants, including, but not limited to, attorney’s fees reasonably incurred in enforcement activity.
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Section 16.Confidentiality. In consideration of this Agreement, Participant agrees to the following:
(a)During the term of Participant’s employment, Participant has been, and will continue to be, provided with Trade Secrets and/or Confidential Information. This information has been developed at great expense to Company and is necessary for Company to conduct its business.
(b)While Participant is employed by Company, Participant will not directly or indirectly use or disclose any Trade Secret or Confidential Information, except in the interest and for the benefit of Company.
(c)After the termination of Participant’s employment with Company for any reason, Participant will not directly or indirectly use or disclose any Trade Secret.
(d)For a period of twenty-four (24) months following the termination of Participant’s employment with Company for any reason, Participant will not directly or indirectly use or disclose any Confidential Information. This confidentiality provision is not intended in any way to modify or limit Participant’s ongoing duty to maintain the confidentiality of information as required under federal and state laws and regulations.
(e)For purposes of this Agreement, the term “Trade Secret” has that meaning set forth under applicable law. Participant shall not disclose any information that constitutes a trade secret as defined in § 134.90, Wis. Stats. for as long as the information continues to be a trade secret or any information where disclosure is otherwise restricted by federal, state or local laws and regulations.
(f)For purposes of this Agreement, the term “Confidential Information” means all non-Trade Secret information of, about or related to Company or provided to Company by its clients, vendors and suppliers that is not known generally to the public or Company’s competitors. Confidential Information includes, but is not limited to: (i) new products, product specifications, information about products under development, research, development or business plans, financial information, client lists, vendor or supplier lists, information about transactions with clients, pricing information, information relating to costs, business records, and employment records and policies (other than Participant’s own); (ii) information that is marked or otherwise designated or treated as confidential or proprietary by Company; and (iii) information received by Company from others which Company has an obligation to treat as confidential.
(g)Notwithstanding the foregoing, the terms “Confidential Information” and “Trade Secret” do not include, and the obligations set forth in this Agreement do not apply to, any information that: (1) can be demonstrated by Participant to have been known by Participant prior to Participant’s employment by Company; (2) is or becomes generally available to the public through no act or omission of Participant; (3) is obtained by Participant in good faith from a third party who discloses such information to Participant on a non-confidential basis without violating any obligation of confidentiality or secrecy relating to the information disclosed; or (4) is independently developed by Participant outside the scope of Participant’s employment without the use of Confidential Information or Trade Secrets. Nothing in this Agreement shall limit or supersede any common law, statutory or other protections of trade secrets where such protections provide the Company with greater rights or protections for a longer duration than provided in this Agreement. With respect to the disclosure of a Trade Secret and in accordance with 18 U.S.C. § 1833, Participant shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a Trade Secret that (i) is made in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, provided that,
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the information is disclosed solely for the purpose of reporting or investigating a suspected violation of law; or (ii) is made in a complaint or other document filed in a lawsuit or other proceeding filed under seal so that it is not disclosed to the public. Participant is further notified that if Participant files a lawsuit for retaliation by the Company for reporting a suspected violation of law, Participant may disclose the Company’s Trade Secrets to Participant’s attorney and use the Trade Secret information in the court proceeding, provided that Participant files any document containing the Trade Secret under seal so that it is not disclosed to the public, and does not disclose the Trade Secret, except pursuant to court order.
(h)These covenants are effective immediately and shall remain in force before and after the time the rights to the RSUs granted under this Agreement vest, and after such RSUs are issued to or transferred by Participant. The parties intend that this Section 16 and each and all of its individual subparagraphs, provisions, and clauses are severable from any other provision of this agreement, as provided in Section 21, and are also severable from any other promise or duty owed by Participant to the Company.
(i)Participant agrees that each of these covenants is reasonably and properly necessary to protect the legitimate business interests of the Company. Participant acknowledges that damages for the violation of any of these covenants will be inadequate and will not give full, sufficient relief to the Company, and that a breach of any of these covenants will constitute irreparable harm to the Company. Therefore, Participant agrees that in the event of any violation of any of these covenants, the Company shall be entitled to compensatory damages and injunctive relief.
(j)Participant will reimburse and indemnify the Company for the actual costs incurred by the Company in enforcing any of these covenants, including, but not limited to, attorney’s fees reasonably incurred in enforcement activity.
(k)Notwithstanding anything herein to the contrary, in accordance with Rule 21F-17 under the Securities Exchange Act of 1934 and the rules promulgated thereunder, the Company shall not impede a Participant’s ability to communicate with the Securities and Exchange Commission or other governmental agencies regarding possible federal securities law violations (1) without the Company’s approval and (2) without having to forfeit or forego any resulting whistleblower awards, and the Company shall not enforce any provision of any policy to the extent such provision would be deemed to require the Company’s prior approval of such communication or forfeiture of any award, except to the extent otherwise permitted by Rule 21F-17.
Section 17.Breach of Restrictive Covenants. Except as otherwise provided by the Committee, notwithstanding any provision of the Plan to the contrary, if Participant breaches a non-competition, non-solicitation, non-disclosure, non-disparagement or other restrictive covenant set forth in an Award Agreement or any other agreement between Participant and the Company, whether during or after Participant’s Termination of Service, in addition to and not in limitation of any other rights, remedies, damages, penalties or restrictions available to the Company under the Plan, an Award Agreement, any other agreement between Participant and the Company, or otherwise at law or in equity, Participant shall forfeit or pay to the Company:
(a)Any and all outstanding Awards granted to Participant, including Awards that have become vested or exercisable;
(b)Any Shares held by Participant in connection with the Plan that were acquired by Participant after Participant’s Termination of Service and within the 12-month period immediately preceding Participant’s Termination of Service;
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(c)The profit realized by Participant from the exercise of any stock options and SARs that Participant exercised after Participant’s Termination of Service and within the 12-month period immediately preceding Participant’s Termination of Service, which profit is the difference between the exercise price of the stock option or SAR and the Fair Market Value of any Shares or cash acquired by Participant upon exercise of such stock option or SAR; and
(d)The profit realized by Participant from the sale, or other disposition for consideration, of any Shares received by Participant in connection with the Plan after Participant’s Termination of Service and within the 12-month period immediately preceding Participant’s Termination of Service and where such sale or disposition occurs in such similar time period.
Section 18.Offset. The Company shall have the right to offset, from any amount payable or stock deliverable hereunder, any amount that Participant owes to the Company without the consent of Participant or any individual with a right to Participant’s Award
Section 19.Effect on Other Agreements. The foregoing provisions of Section 14 (Nonsolicitation of Clients), Section 15 (Protection of Leadership Pool), and Section 16 (Confidentiality) shall not be construed to supersede or alleviate any obligations of Participant to the Company with respect to any restrictive covenant, non-compete or confidentiality agreement otherwise binding on Participant, which shall remain in full force and effect to the extent provided in any such agreements, and in the event that a provision of such agreement shall conflict with any provision of this Award Agreement, Participant acknowledges and agrees that the provision which is most protective of the Company’s confidential or proprietary interests shall control. Notwithstanding the foregoing, the provisions of Section 14, Section 15 and Section 16 shall supersede and replace any similar restrictions included in previous Award Agreements.
Section 20.Notices. Any notice hereunder to the Company shall be addressed to it at its office, 401 Charmany Drive, Madison, WI 53719; Attention: Corporate Secretary, and any notice hereunder to Participant shall be addressed to him or her at the last home address on file with the Company. Either party may designate some other address at any time hereafter in writing.
Section 21.Severability. In the event any provision of the Agreement is held illegal or invalid for any reason, the illegality or invalidity will not affect the remaining provisions of the Agreement, and the Agreement shall be construed and enforced as if the illegal or invalid provision had not been included.
Section 22.New Employers. While Participant is employed by the Company and for a period of twelve (12) months immediately following the date Participant ceases to be an employee of the Company, Participant will inform each new employer, prior to accepting employment, of the existence of this Agreement, including the prohibitions contained in Section 14, Section 15 and Section 16 and provide that employer with a copy of it. Participant authorizes the Company to forward a copy of the prohibitions against competition as contained in this section to any actual or prospective new employer.
Section 23.Waiver of Jury Trial. EXCEPT TO THE EXTENT PROHIBITED BY STATE LAW, BY SIGNING THIS AGREEMENT, EACH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL ACTION, PROCEEDING, CAUSE OF ACTION OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, INCLUDING ANY EXHIBITS, SCHEDULES, AND APPENDICES ATTACHED TO THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT
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(A) NO REPRESENTATIVE OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (B) IT HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) IT MAKES THIS WAIVER KNOWINGLY AND VOLUNTARILY, AND (D) IT HAS DECIDED TO ENTER INTO THIS AGREEMENT IN CONSIDERATION OF, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
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IN WITNESS WHEREOF, the Company has caused this Award Agreement to be executed in its name and on its behalf, and Participant acknowledges understanding and acceptance of, and agrees to, the terms of this Award Agreement (including, but not limited to, the Waiver of Jury Trial provision set forth in Section 23), all as of the Grant Date.
    FIRST BUSINESS FINANCIAL SERVICES, INC.
    By:         
    Print Name:     
    Title:     
    PARTICIPANT
        
    Print Name:     



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Exhibit A
Performance-Based Restricted Stock Unit
Performance Goals
Performance Goals and Vesting Percentages
Performance Goal Weighting Threshold Target Maximum Actual Performance Result Achievement Percentage*
[Relative Return on Average Equity] 50% 50% 100% 200% [__]% [__]%
[Relative Total Shareholder Return] 50% 50% 100% 200% [__]% [__]%
Total Performance-Based RSU Vesting as a percentage of the Target Award [__]%
*Achievement of each performance goal to be determined by straight-line interpolation for actual performance falling between threshold and target or target and maximum levels. If achievement with respect to a particular performance goal does not reach threshold level, then no portion of the award will vest with respect to such performance goal.

Performance-Based RSU Award Opportunities (as % of Target Award)
Attainment Level [Relative Return on Average Equity] [Relative Total Shareholder Return]
Threshold 50% 50%
Target 100% 100%
Maximum 200% 200%

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Exhibit 10.7
FIRST BUSINESS FINANCIAL SERVICES, INC.
2019 EQUITY INCENTIVE PLAN
RESTRICTED STOCK UNIT AWARD AGREEMENT – EXECUTIVE OFFICER

The Participant specified below is hereby granted a restricted stock unit award (the “Award”) by First Business Financial Services, Inc., a Wisconsin corporation (the “Company”), under the First Business Financial Services, Inc. 2019 Equity Incentive Plan (the “Plan”). The Award shall be subject to the terms of the Plan and the terms set forth in this Restricted Stock Unit Award Agreement (“Award Agreement”).
Section 1.Award. The Company hereby grants to Participant the Award of restricted stock units (each such unit, an “RSU”), where each RSU represents the right of Participant to receive one Share in the future upon the expiration of the Restricted Period, subject to the terms of this Award Agreement and the Plan.
Section 2.Terms of Restricted Stock Unit Award. The following words and phrases relating to the Award shall have the following meanings:
(a)The “Participant” is ______________________________.
(b)The “Grant Date” is ______________________________.
(c)The number of RSUs is ______________________.
Except for words and phrases otherwise defined in this Award Agreement, any capitalized word or phrase in this Award Agreement shall have the meaning ascribed to it in the Plan.
Section 3.Restricted Period.

(a)The “Restricted Period” for thirty-three percent (33%) of the Covered Shares will end on each of the first two (2) anniversaries of the Grant Date and thirty-four percent (34%) of the Covered Shares will end on the third (3rd) anniversary.
(b)Notwithstanding the foregoing provisions of this Section 3, the Restricted Period for all the RSUs shall cease immediately and such RSUs shall become fully vested immediately upon Participant’s Termination of Service due to Participant’s Disability or Participant’s death.
(c)Except as set forth in Section 3(b) and 3(d), or as may otherwise be provided by the Committee, if Participant’s Termination of Service occurs prior to the expiration of one or more Restricted Periods, Participant shall forfeit all rights, title and interest in and to any RSUs still subject to a Restricted Period as of such Termination of Service.
(d)Notwithstanding the foregoing provisions of this Section 3 or any other agreement to the contrary between Participant and the Company, if Participant incurs a Termination of Service as a result of Retirement after the first anniversary of the Grant Date, then the RSUs shall not be forfeited as a result of such Retirement and shall continue to vest for as long as Participant remains Retired.
(i)Retirement” means a Termination of Service on or after the date on which Participant has achieved age sixty (60) with at least ten (10) years of service in a senior



executive capacity with the Company; provided that Participant provides at least twelve (12) months’ notice to the Company’s Chief Executive Officer (or, if Participant is the Company’s Chief Executive Officer, to the Board) prior to such Retirement.
(ii)Following Retirement, Participant shall be “Retired” so long as Participant does not (x) directly, or indirectly through another, act as an officer, director, partner or employee of or consultant to, or act in any managerial capacity with, any entity that is engaged in the financial services industry or (y) act in any full-time position with any other entity if such position requires duties and responsibilities similar to the duties and responsibilities of Participant with the Company prior to Retirement.
(iii)Whether Participant remains Retired at any time shall be determined by the Board or the Committee in its sole discretion. If, while this Award is outstanding, Participant commences employment or other work of any kind following Retirement, then Participant is required to promptly provide written notice to the Company of the name of his or her employer and the nature of his or her position or other work. In addition, as a condition for this Award to remain outstanding following Retirement, the Company will require Participant to provide information relating to his or her activities following Retirement prior to each vesting date to enable the Board or the Committee to determine whether Participant remains Retired, and Participant’s failure to provide such information upon request will cause the Award to be forfeited.
(iv)If Participant receives any benefit under this Award after Retirement but when he or she is no longer Retired, then Participant will be obligated to repay to the Company the value of such benefit (with such value to be determined by the Company, which may include a reasonable rate of interest) promptly following receipt from the Company of notice to Participant of his or her repayment obligation.
Section 4.Settlement of RSUs. Delivery of Shares or other amounts under this Award Agreement and the Plan shall be subject to the following:
(a)Delivery of Shares. The Company shall deliver to Participant one Share free and clear of any restrictions in settlement of each of the vested and unrestricted RSUs within 45 days following the end of the respective Restricted Period.
(b)Compliance with Applicable Laws. Notwithstanding any other term of this Award Agreement or the Plan, the Company shall have no obligation to deliver any Shares or make any other distribution of benefits under this Award Agreement or the Plan unless such delivery or distribution complies with all applicable laws and the applicable rules of any securities exchange or similar entity.
(c)Certificates Not Required. To the extent that this Award Agreement and the Plan provide for the issuance of Shares, such issuance may be effected on a non-certificated basis, to the extent not prohibited by applicable law or the applicable rules of any securities exchange or similar entity.
Section 5.Dividend Equivalents. Participant shall receive a cash payment equivalent to any dividends or other distributions paid with respect to the Shares subject to the RSUs, so long as the applicable record date occurs before such RSUs are forfeited or cancelled. Such cash payment shall be paid to Participant (or Participant’s beneficiary in accordance with Section 7) at the same time as the dividend or other distribution is paid to Shareholders. If, however, any dividends or distributions with respect to the Shares underlying the RSUs are paid in Shares rather than cash, then Participant shall be
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credited with additional RSUs equal to the number of Shares that Participant would have received had the RSUs been actual Shares, and such RSUs shall be deemed RSUs added to the Award subject to the same risk of forfeiture and other terms of this Agreement.
Section 6.No Shareholder Rights. Participant shall not have any rights of a Shareholder with respect to the RSUs, including but not limited to, voting rights, prior to settlement of the RSUs pursuant to Section 4(a) above.
Section 7.Heirs and Successors. This Award Agreement shall be binding upon, and inure to the benefit of, the Company and its successors and assigns, and upon any person acquiring all or substantially all of the Company’s assets or business. If any rights of Participant or benefits distributable to Participant under this Award Agreement have not been settled or distributed at the time of Participant’s death, such rights shall be settled for and such benefits shall be distributed to the Designated Beneficiary in accordance with the provisions of this Award Agreement and the Plan. The “Designated Beneficiary” shall be the beneficiary or beneficiaries designated by Participant in a writing filed with the Committee in such form as the Committee may require. Participant’s designation of beneficiary may be amended or revoked from time to time by Participant in accordance with any procedures established by the Committee. If a Participant fails to designate a beneficiary, or if the Designated Beneficiary does not survive Participant, any benefits that would have been provided to Participant shall be provided to the legal representative of the estate of Participant. If a Participant designates a beneficiary and the Designated Beneficiary survives Participant but dies before the provision of the Designated Beneficiary’s benefits under this Award Agreement, then any benefits that would have been provided to the Designated Beneficiary shall be provided to the legal representative of the estate of the Designated Beneficiary.
Section 8.Administration. The authority to manage and control the operation and administration of this Award Agreement and the Plan shall be vested in the Committee, and the Committee shall have all powers with respect to this Award Agreement as it has with respect to the Plan. Any interpretation of this Award Agreement or the Plan by the Committee and any decision made by the Committee with respect to this Award Agreement or the Plan shall be final and binding on all persons.
Section 9.Plan Governs. Notwithstanding any provision of this Award Agreement to the contrary, this Award Agreement shall be subject to the terms of the Plan, a copy of which may be obtained by Participant from the office of the secretary of the Company. This Award Agreement shall be subject to all interpretations, amendments, rules and regulations promulgated by the Committee from time to time. Notwithstanding any provision of this Award Agreement to the contrary, in the event of any discrepancy between the corporate records of the Company, including the Plan, and this Award Agreement, the corporate records of the Company shall control.
Section 10.Not an Employment Contract. Neither the Award nor this Award Agreement shall confer on Participant any rights with respect to continuance of employment or other service with the Company or a Subsidiary, nor shall they interfere in any way with any right the Company or a Subsidiary may otherwise have to terminate or modify the terms of Participant’s employment or other service at any time.
Section 11.Amendment. Without limitation of Section 13 below, this Award Agreement may be amended in accordance with the provisions of the Plan and may otherwise be amended in writing by Participant and the Company without the consent of any other person.
Section 12.Governing Law. This Award Agreement, the Plan and all actions taken in connection herewith and therewith shall be governed by and construed in accordance with the laws of the
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State of Wisconsin, without reference to principles of conflict of laws, except as superseded by applicable federal law; and any court action commenced to enforce this Agreement shall have as its sole and exclusive venue the County of Dane, Wisconsin.
Section 13.Clawback. The Award and any amount or benefit received under the Plan shall be subject to potential cancellation, recoupment, rescission, payback or other action in accordance with the terms of any applicable Company clawback policy (the “Policy”) or any applicable law, as may be in effect from time to time. Participant hereby acknowledges and consents to the Company’s application, implementation and enforcement of (a) the Policy and any similar policy established by the Company that may apply to Participant together with all other similarly situated participants, whether adopted prior to or following the date of this Award Agreement and (b) any provision of applicable law relating to cancellation, rescission, payback or recoupment of compensation, and agrees that the Company may take such actions as may be necessary to effectuate the Policy, any similar policy and applicable law, without further consideration or action.
Section 14.Nonsolicitation of Clients.
(a)While Participant is employed by the Company and for a period of twelve (12) months immediately following, Participant will not, except on behalf of or as otherwise directed by the Company, directly or indirectly (through or by providing assistance to another person or entity), solicit Financial Services (defined below) business from any client of the Company who/which was a client of the Company and (1) with whom/which Participant had any contact or (2) about whom/which Participant had access to non-public confidential or proprietary information, in the case of both (1) and (2), above, during the period of one year prior to the date Participant ceased to be an employee of the Company.
(b)While Participant is employed by the Company, and for a period of twelve (12) months immediately following, Participant will not, except on behalf of or as otherwise directed by the Company, conduct business relating to Financial Services (defined below) with any client of the Company who/which was a client of the Company and (1) with whom/which Participant had any contact or (2) about whom/which Participant had access to non-public confidential or proprietary information, in the case of both (1) and (2), above, during the period of one year prior to the date Participant ceased to be an employee of the Company.
(c)While Participant is employed by the Company, and for a period of six (6) months immediately following, Participant will not, except on behalf of or as otherwise directed by the Company, directly or indirectly (through or by providing assistance to another person or entity), solicit Financial Services (defined below) business from any prospective client of the Company with whom/which the Company engaged in direct marketing efforts (as opposed to general solicitations of business) and (1) with whom/which Participant had any contact or (2) about whom/which Participant had access to non-public confidential or proprietary information, in the case of both (1) and (2), above, during the period of one year prior to the date Participant ceased to be an employee of the Company.
(d)For clarification purposes, the restrictions described in the above subparagraphs apply to clients whether they are persons or entities. The term “Financial Services” as used herein shall mean products and/or services offered by the Company within the twelve (12) month period immediately preceding Participant’s last day of employment with the Company.
(e)These covenants are effective immediately and shall remain in force before and after the time the rights to the RSUs granted under this Agreement vest, and after such RSUs are issued to or transferred by Participant. The parties intend that this Section 14 and each and all of its individual
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subparagraphs, provisions, and clauses are severable from any other provision of this agreement, as provided in Section 21, and are also severable from any other promise or duty owed by Participant to the Company.
(f)Participant agrees that each of these covenants is reasonably and properly necessary to protect the legitimate business interests of the Company. Participant acknowledges that damages for the violation of any of these covenants will be inadequate and will not give full, sufficient relief to the Company, and that a breach of any of these covenants will constitute irreparable harm to the Company. Therefore, Participant agrees that in the event of any violation of any of these covenants, the Company shall be entitled to compensatory damages and injunctive relief.
(g)Participant will reimburse and indemnify the Company for the actual costs incurred by the Company in enforcing any of these covenants, including, but not limited to, attorney’s fees reasonably incurred in enforcement activity.
Section 15.Protection of Leadership Pool. Participant and the Company agree to the following:
(a)Participant is a top-level employee of the Company or has special skills or knowledge important to the Company or has skills that are difficult for the Company to replace.
(b)Participant’s colleagues who are employed by the Company in a position of officer or manager, or above (collectively, the “Leadership Pool”) are likewise top-level employees of the Company or have special skills or knowledge important to the Company or have skills that are difficult for the Company to replace.
(c)If Participant or any member of the Leadership Pool ceases to be so employed, the Company will have a business necessity to replace the skills lost.
(d)It takes time after an employee of the caliber of Participant and/or the Leadership Pool leaves the employ of the Company to replace the skills lost; 180 days is a reasonable measure of the time needed to replace such skills.
(e)A primary and necessary source of replacement of the skills of Participant and/or a member of the Leadership Pool are the other members of the Leadership Pool.
(f)The parties recognize that employees of the Company (not otherwise bound by contract) are not in any way restricted from competing with the Company, and are not obligated to accept, nor even to consider, proposals by the Company that they replace Participant or a member of the Leadership Pool in the event Participant or a member of the Leadership Pool leaves the Company.
(g)Because of Participant’s present position, Participant is in a position to assist and influence those members of the Leadership Pool with whom Participant has or had a working relationship during the immediately preceding two (2) years, or about whom/which Participant has acquired or possessed specialized knowledge (in either case, a “Restricted Person”) in choosing whether to remain with the Company and consider or accept other positions with the Company rather than choosing to seek other opportunities outside the Company. Any suggestion by Participant that a Restricted Person should seek another employment opportunity outside the Company, and any offer of another employment opportunity by another employer to a Restricted Person with the assistance of Participant, would be such assistance and influence, in derogation of Participant’s duty to the Company as a managerial and supervisory employee.
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(h)The monetary value of the loss to the Company in case Participant in fact assists or influences a Restricted Person to leave the Company for a competitor would be impossible to precisely measure. Injunctive relief for a breach of subsection (j) would also be ineffective.
(i)The parties agree that a fair estimate of the monetary value of the loss to the Company in case Participant assists or influences another employee to leave the Company for a competitor would be Participant’s daily rate of base pay as of the last day he or she was employed by the Company times 180.
(j)In consideration of this Agreement, and of the continued employment of Participant by the Company, Participant agrees that Participant will not, directly or through another, during Participant’s employment and for a period of one (1) year thereafter, assist or influence any Restricted Person to take a position outside the Company which is reasonably likely to pose a competitive threat to the Company.
(k)In the event of a breach by Participant of subsection (j), the stipulated damages for such breach are agreed to be Participant’s daily rate of base pay as of the time he or she leaves the Company times 180. This provision for stipulated damages is intended to be and is severable from the substantive obligation in subsection (j), and from the other provisions of this Agreement.
(l)Subsections (j) and (k) are solely for the purposes stated in subsections (a) through (k) and are not for the purpose of limiting the ability of Participant to compete with the Company.
(m)Participant and the Company intend that the promise by Participant in subsection (j) is separate and separable from any other obligation of Participant, and for a different purpose, and with a different remedy from the promise of Participant not to solicit or conduct business with certain clients or to disclose Confidential Information or Trade Secrets of the Company, under Section 14 and Section 16, respectively.
(n)This Section 15 is effective immediately and remains in force before and after the time the rights to the RSUs granted under this Agreement vest, and after such RSUs are issued to or transferred by Participant.
(o)Participant will reimburse and indemnify the Company for the actual costs incurred by the Company in enforcing these covenants, including, but not limited to, attorney’s fees reasonably incurred in enforcement activity.
Section 16.Confidentiality. In consideration of this Agreement, Participant agrees to the following:
(a)During the term of Participant’s employment, Participant has been, and will continue to be, provided with Trade Secrets and/or Confidential Information. This information has been developed at great expense to Company and is necessary for Company to conduct its business.
(b)While Participant is employed by Company, Participant will not directly or indirectly use or disclose any Trade Secret or Confidential Information, except in the interest and for the benefit of Company.
(c)After the termination of Participant’s employment with Company for any reason, Participant will not directly or indirectly use or disclose any Trade Secret.
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(d)For a period of twenty-four (24) months following the termination of Participant’s employment with Company for any reason, Participant will not directly or indirectly use or disclose any Confidential Information. This confidentiality provision is not intended in any way to modify or limit Participant’s ongoing duty to maintain the confidentiality of information as required under federal and state laws and regulations.
(e)For purposes of this Agreement, the term “Trade Secret” has that meaning set forth under applicable law. Participant shall not disclose any information that constitutes a trade secret as defined in § 134.90, Wis. Stats. for as long as the information continues to be a trade secret or any information where disclosure is otherwise restricted by federal, state or local laws and regulations.
(f)For purposes of this Agreement, the term “Confidential Information” means all non-Trade Secret information of, about or related to Company or provided to Company by its clients, vendors and suppliers that is not known generally to the public or Company’s competitors. Confidential Information includes, but is not limited to: (i) new products, product specifications, information about products under development, research, development or business plans, financial information, client lists, vendor or supplier lists, information about transactions with clients, pricing information, information relating to costs, business records, and employment records and policies (other than Participant’s own); (ii) information that is marked or otherwise designated or treated as confidential or proprietary by Company; and (iii) information received by Company from others which Company has an obligation to treat as confidential.
(g)Notwithstanding the foregoing, the terms “Confidential Information” and “Trade Secret” do not include, and the obligations set forth in this Agreement do not apply to, any information that: (1) can be demonstrated by Participant to have been known by Participant prior to Participant’s employment by Company; (2) is or becomes generally available to the public through no act or omission of Participant; (3) is obtained by Participant in good faith from a third party who discloses such information to Participant on a non-confidential basis without violating any obligation of confidentiality or secrecy relating to the information disclosed; or (4) is independently developed by Participant outside the scope of Participant’s employment without the use of Confidential Information or Trade Secrets. Nothing in this Agreement shall limit or supersede any common law, statutory or other protections of trade secrets where such protections provide the Company with greater rights or protections for a longer duration than provided in this Agreement. With respect to the disclosure of a Trade Secret and in accordance with 18 U.S.C. § 1833, Participant shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a Trade Secret that (i) is made in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, provided that, the information is disclosed solely for the purpose of reporting or investigating a suspected violation of law; or (ii) is made in a complaint or other document filed in a lawsuit or other proceeding filed under seal so that it is not disclosed to the public. Participant is further notified that if Participant files a lawsuit for retaliation by the Company for reporting a suspected violation of law, Participant may disclose the Company’s Trade Secrets to Participant’s attorney and use the Trade Secret information in the court proceeding, provided that Participant files any document containing the Trade Secret under seal so that it is not disclosed to the public, and does not disclose the Trade Secret, except pursuant to court order.
(h)These covenants are effective immediately and shall remain in force before and after the time the rights to the RSUs granted under this Agreement vest, and after such RSUs are issued to or transferred by Participant. The parties intend that this Section 16 and each and all of its individual subparagraphs, provisions, and clauses are severable from any other provision of this agreement, as provided in Section 21, and are also severable from any other promise or duty owed by Participant to the Company.
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(i)Participant agrees that each of these covenants is reasonably and properly necessary to protect the legitimate business interests of the Company. Participant acknowledges that damages for the violation of any of these covenants will be inadequate and will not give full, sufficient relief to the Company, and that a breach of any of these covenants will constitute irreparable harm to the Company. Therefore, Participant agrees that in the event of any violation of any of these covenants, the Company shall be entitled to compensatory damages and injunctive relief.
(j)Participant will reimburse and indemnify the Company for the actual costs incurred by the Company in enforcing any of these covenants, including, but not limited to, attorney’s fees reasonably incurred in enforcement activity.
(k)Notwithstanding anything herein to the contrary, in accordance with Rule 21F-17 under the Securities Exchange Act of 1934 and the rules promulgated thereunder, the Company shall not impede a Participant’s ability to communicate with the Securities and Exchange Commission or other governmental agencies regarding possible federal securities law violations (1) without the Company’s approval and (2) without having to forfeit or forego any resulting whistleblower awards, and the Company shall not enforce any provision of any policy to the extent such provision would be deemed to require the Company’s prior approval of such communication or forfeiture of any award, except to the extent otherwise permitted by Rule 21F-17.
Section 17.Breach of Restrictive Covenants. Except as otherwise provided by the Committee, notwithstanding any provision of the Plan to the contrary, if Participant breaches a non-competition, non-solicitation, non-disclosure, non-disparagement or other restrictive covenant set forth in an Award Agreement or any other agreement between Participant and the Company, whether during or after Participant’s Termination of Service, in addition to and not in limitation of any other rights, remedies, damages, penalties or restrictions available to the Company under the Plan, an Award Agreement, any other agreement between Participant and the Company, or otherwise at law or in equity, Participant shall forfeit or pay to the Company:
(a)Any and all outstanding Awards granted to Participant, including Awards that have become vested or exercisable;
(b)Any Shares held by Participant in connection with the Plan that were acquired by Participant after Participant’s Termination of Service and within the 12-month period immediately preceding Participant’s Termination of Service;
(c)The profit realized by Participant from the exercise of any stock options and SARs that Participant exercised after Participant’s Termination of Service and within the 12-month period immediately preceding Participant’s Termination of Service, which profit is the difference between the exercise price of the stock option or SAR and the Fair Market Value of any Shares or cash acquired by Participant upon exercise of such stock option or SAR; and
(d)The profit realized by Participant from the sale, or other disposition for consideration, of any Shares received by Participant in connection with the Plan after Participant’s Termination of Service and within the 12-month period immediately preceding Participant’s Termination of Service and where such sale or disposition occurs in such similar time period.
Section 18.Offset. The Company shall have the right to offset, from any amount payable or stock deliverable hereunder, any amount that Participant owes to the Company without the consent of Participant or any individual with a right to Participant’s Award
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Section 19.Effect on Other Agreements. The foregoing provisions of Section 14 (Nonsolicitation of Clients), Section 15 (Protection of Leadership Pool), and Section 16 (Confidentiality) shall not be construed to supersede or alleviate any obligations of Participant to the Company with respect to any restrictive covenant, non-compete or confidentiality agreement otherwise binding on Participant, which shall remain in full force and effect to the extent provided in any such agreements, and in the event that a provision of such agreement shall conflict with any provision of this Award Agreement, Participant acknowledges and agrees that the provision which is most protective of the Company’s confidential or proprietary interests shall control. Notwithstanding the foregoing, the provisions of Section 14, Section 15 and Section 16 shall supersede and replace any similar restrictions included in previous Award Agreements.
Section 20.Notices. Any notice hereunder to the Company shall be addressed to it at its office, 401 Charmany Drive, Madison, WI 53719; Attention: Corporate Secretary, and any notice hereunder to Participant shall be addressed to him or her at the last home address on file with the Company. Either party may designate some other address at any time hereafter in writing.
Section 21.Severability. In the event any provision of the Agreement is held illegal or invalid for any reason, the illegality or invalidity will not affect the remaining provisions of the Agreement, and the Agreement shall be construed and enforced as if the illegal or invalid provision had not been included.
Section 22.New Employers. While Participant is employed by the Company and for a period of twelve (12) months immediately following the date Participant ceases to be an employee of the Company, Participant will inform each new employer, prior to accepting employment, of the existence of this Agreement, including the prohibitions contained in Section 14, Section 15 and Section 16 and provide that employer with a copy of it. Participant authorizes the Company to forward a copy of the prohibitions against competition as contained in this section to any actual or prospective new employer.
Section 23.Waiver of Jury Trial. EXCEPT TO THE EXTENT PROHIBITED BY STATE LAW, BY SIGNING THIS AGREEMENT, EACH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL ACTION, PROCEEDING, CAUSE OF ACTION OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, INCLUDING ANY EXHIBITS, SCHEDULES, AND APPENDICES ATTACHED TO THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (B) IT HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) IT MAKES THIS WAIVER KNOWINGLY AND VOLUNTARILY, AND (D) IT HAS DECIDED TO ENTER INTO THIS AGREEMENT IN CONSIDERATION OF, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
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IN WITNESS WHEREOF, the Company has caused this Award Agreement to be executed in its name and on its behalf, and Participant acknowledges understanding and acceptance of, and agrees to, the terms of this Award Agreement (including, but not limited to, the Waiver of Jury Trial provision set forth in Section 23), all as of the Grant Date.
    FIRST BUSINESS FINANCIAL SERVICES, INC.
    By:         
    Print Name:     
    Title:     
    PARTICIPANT
        
    Print Name:     

Exhibit 10.8
FIRST BUSINESS FINANCIAL SERVICES, INC.
2019 EQUITY INCENTIVE PLAN
RESTRICTED STOCK AWARD AGREEMENT – BOARD OF DIRECTORS
The Participant specified below is hereby granted a restricted stock award (the “Award”) by First Business Financial Services, Inc., a Wisconsin corporation (the “Company”), under the First Business Financial Services, Inc. 2019 Equity Incentive Plan (the “Plan”). The Award shall be subject to the terms of the Plan and the terms set forth in this Restricted Stock Award Agreement (“Award Agreement”).
Section 1.Award. The Company hereby grants to Participant the Award of restricted stock, which represents the right of Participant to enjoy the number of shares set forth in Section 2 below (“Covered Shares”) free of restrictions once the Restricted Period ends, subject to the terms of this Award Agreement and the Plan.
Section 2.Terms of Restricted Stock Award. The following words and phrases relating to the Award shall have the following meanings:
(a)The “Participant” is ______________________________.
(b)The “Grant Date” is ______________________________.
(c)The number of “Covered Shares” is ______________________ Shares.
Except for words and phrases otherwise defined in this Award Agreement, any capitalized word or phrase in this Award Agreement shall have the meaning ascribed to it in the Plan.
Section 3.Restricted Period. The “Restricted Period” for each installment of Covered Shares (each, an “Installment”) shall begin on the Grant Date.
(a)The Restricted Period for _________ (____%) of the Covered Shares will end on _________________ of the Grant Date.
(b)Notwithstanding the foregoing provisions of this Section 3, the Restricted Period for all the Covered Shares shall cease immediately and such Covered Shares shall become fully vested immediately upon Participant’s Termination of Service due to Participant’s Disability or Participant’s death.
(c)Except as set forth in Section 3(b) above, or as may otherwise be provided by the Committee, if Participant’s Termination of Service occurs prior to the expiration of one or more Restricted Periods, Participant shall forfeit all rights, title and interest in and to any Installment(s) still subject to a Restricted Period as of such Termination of Service.
Section 4.Dividends. Participant shall be entitled to receive dividends and distributions paid on any Installment during the Restricted Period applicable to such Installment (other than dividends and distributions that may be issued with respect to Shares by virtue of any corporate transaction, to the extent adjustment is made pursuant to Section 3.4 of the Plan); provided, however, that no dividends or distributions shall be payable to or for the benefit of Participant with respect to record dates for such dividends or distributions occurring before the Grant Date or on or after the date, if any, on which Participant has forfeited the respective Covered Shares.



Section 5.Voting Rights. Participant shall be entitled to vote the Covered Shares during the Restricted Period applicable to each Installment; provided, however, that Participant shall not be entitled to vote Covered Shares with respect to record dates occurring before the Grant Date or on or after the date, if any, on which Participant has forfeited those Covered Shares.
Section 6.Deposit of Restricted Stock Award. All Shares issued with respect to Covered Shares shall be registered in the name of Participant and shall be retained by the Company, or an agent of the Company, until the end of the Restricted Period applicable to such Covered Shares.
Section 7.Heirs and Successors. This Award Agreement shall be binding upon, and inure to the benefit of, the Company and its successors and assigns, and upon any person acquiring all or substantially all of the Company’s assets or business. If any rights of Participant or benefits distributable to Participant under this Award Agreement have not been settled or distributed at the time of Participant’s death, such rights shall be settled for and such benefits shall be distributed to the Designated Beneficiary in accordance with the provisions of this Award Agreement and the Plan. The “Designated Beneficiary” shall be the beneficiary or beneficiaries designated by Participant in a writing filed with the Committee in such form as the Committee may require. Participant’s designation of beneficiary may be amended or revoked from time to time by Participant in accordance with any procedures established by the Committee. If a Participant fails to designate a beneficiary, or if the Designated Beneficiary does not survive Participant, any benefits that would have been provided to Participant shall be provided to the legal representative of the estate of Participant. If a Participant designates a beneficiary and the Designated Beneficiary survives Participant but dies before the provision of the Designated Beneficiary’s benefits under this Award Agreement, then any benefits that would have been provided to the Designated Beneficiary shall be provided to the legal representative of the estate of the Designated Beneficiary.
Section 8.Administration. The authority to manage and control the operation and administration of this Award Agreement and the Plan shall be vested in the Committee, and the Committee shall have all powers with respect to this Award Agreement as it has with respect to the Plan. Any interpretation of this Award Agreement or the Plan by the Committee and any decision made by the Committee with respect to this Award Agreement or the Plan shall be final and binding on all persons.
Section 9.Plan Governs. Notwithstanding any provision of this Award Agreement to the contrary, this Award Agreement shall be subject to the terms of the Plan, a copy of which may be obtained by Participant from the office of the secretary of the Company. This Award Agreement shall be subject to all interpretations, amendments, rules and regulations promulgated by the Committee from time to time. Notwithstanding any provision of this Award Agreement to the contrary, in the event of any discrepancy between the corporate records of the Company, including the Plan, and this Award Agreement, the corporate records of the Company shall control.
Section 10.Not an Employment or Service Contract. Neither the Award nor this Award Agreement shall confer on Participant any rights with respect to continuance of employment or other service with the Company or a Subsidiary, nor shall they interfere in any way with any right the Company or a Subsidiary may otherwise have to terminate or modify the terms of Participant’s employment or other service at any time.
Section 11.Amendment. Without limitation of Section 13 below, this Award Agreement may be amended in accordance with the provisions of the Plan and may otherwise be amended in writing by Participant and the Company without the consent of any other person.
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Section 12.Governing Law. This Award Agreement, the Plan and all actions taken in connection herewith and therewith shall be governed by and construed in accordance with the laws of the State of Wisconsin, without reference to principles of conflict of laws, except as superseded by applicable federal law; and any court action commenced to enforce this Agreement shall have as its sole and exclusive venue the County of Dane, Wisconsin.
Section 13.Clawback. The Award and any amount or benefit received under the Plan shall be subject to potential cancellation, recoupment, rescission, payback or other action in accordance with the terms of any applicable Company clawback policy (the “Policy”) or any applicable law, as may be in effect from time to time. Participant hereby acknowledges and consents to the Company’s application, implementation and enforcement of (a) the Policy and any similar policy established by the Company that may apply to Participant together with all other similarly situated participants, whether adopted prior to or following the date of this Award Agreement and (b) any provision of applicable law relating to cancellation, rescission, payback or recoupment of compensation, and agrees that the Company may take such actions as may be necessary to effectuate the Policy, any similar policy and applicable law, without further consideration or action.
Section 14.Service on the Board of another Financial Services Organization
(a)While Participant is a director of the Company and for a period of twelve (12) months immediately following a Termination of Service, Participant will not, except on behalf of or as otherwise directed by the Company, serve as a director of another organization offering Financial Services (defined below).
(b) The term “Financial Services” as used herein shall mean products and/or services offered by the Company within the twelve (12) month period immediately preceding Participant’s Termination of Service.
(c)These covenants are effective immediately and shall remain in force before and after the time the rights to Restricted Shares granted under this Agreement vest, and after such Restricted Shares are transferred by Participant. The parties intend that this Section 14 and each and all of its individual subparagraphs, provisions, and clauses are severable from any other provision of this agreement, as provided in Section 21, and are also severable from any other promise or duty owed by Participant to the Company.
(d)Participant agrees that this covenant is reasonably and properly necessary to protect the legitimate business interests of the Company. Participant acknowledges that damages for the violation of this covenant will be inadequate and will not give full, sufficient relief to the Company, and that a breach of any of these covenants will constitute irreparable harm to the Company. Therefore, Participant agrees that in the event of any violation of this covenant, the Company shall be entitled to compensatory damages and injunctive relief.
(e)Participant will reimburse and indemnify the Company for the actual costs incurred by the Company in enforcing this covenant, including, but not limited to, attorney’s fees reasonably incurred in enforcement activity.
Section 15.Protection of Leadership Pool. Participant and the Company agree to the following:
(a)Participant is a director of the Company or has special skills or knowledge important to the Company or has skills that are difficult for the Company to replace.
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(b)Individuals who are employed by the Company in a position of officer or manager, or above (collectively, the “Leadership Pool”) are top-level employees of the Company or have special skills or knowledge important to the Company or have skills that are difficult for the Company to replace.
(c)If Participant or any member of the Leadership Pool ceases to be so employed, the Company will have a business necessity to replace the skills lost.
(d)It takes time after a director of the caliber of Participant and/or the Leadership Pool leaves the employ of the Company to replace the skills lost; 180 days is a reasonable measure of the time needed to replace such skills.
(e)Because of Participant’s present position, Participant is in a position to assist and influence those members of the Leadership Pool with whom Participant has or had a working relationship during the immediately preceding two (2) years, or about whom/which Participant has acquired or possessed specialized knowledge (in either case, a “Restricted Person”) in choosing whether to remain with the Company and consider or accept other positions with the Company rather than choosing to seek other opportunities outside the Company. Any suggestion by Participant that a Restricted Person should seek another employment opportunity outside the Company, and any offer of another employment opportunity by another employer to a Restricted Person with the assistance of Participant, would be such assistance and influence, in derogation of Participant’s duty to the Company as a Company director.
(f)The monetary value of the loss to the Company in case Participant in fact assists or influences a Restricted Person to leave the Company for a competitor would be impossible to precisely measure. Injunctive relief for a breach of subsection (h) would also be ineffective.
(g)The parties agree that a fair estimate of the monetary value of the loss to the Company in case Participant assists or influences another employee to leave the Company for a competitor would be 50% of Participant’s prior calendar year’s total director fees paid.
(h)In consideration of this Agreement, and of the Participant’s continued services as a director of the Company, Participant agrees that Participant will not, directly or through another, during Participant’s service as a director of the Company and for a period of one (1) year thereafter, assist or influence any Restricted Person to take a position outside the Company which is reasonably likely to pose a competitive threat to the Company.
(i)In the event of a breach by Participant of subsection (h), the stipulated damages for such breach are agreed to be 50% of Participant’s prior calendar year’s total director fees paid. This provision for stipulated damages is intended to be and is severable from the substantive obligation in subsection (h), and from the other provisions of this Agreement.
(j)Subsections (h) and (i) are solely for the purposes stated in subsections (a) through (i) and are not for the purpose of limiting the ability of Participant to compete with the Company.
(k)Participant and the Company intend that the promise by Participant in subsection (h) is separate and separable from any other obligation of Participant, and for a different purpose, and with a different remedy from the promise of Participant not to serve on the board of another Financial Services organization or to disclose Confidential Information or Trade Secrets of the Company, under Section 14 and Section 16, respectively.
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(l)This Section 15 is effective immediately and remains in force before and after the time the rights to Restricted Shares granted under this Agreement vest, and after such Restricted Shares are transferred by Participant.
(m)Participant will reimburse and indemnify the Company for the actual costs incurred by the Company in enforcing these covenants, including, but not limited to, attorney’s fees reasonably incurred in enforcement activity.
Section 16.Confidentiality. In consideration of this Agreement, Participant agrees to the following:
(a)During the term of Participant’s service as a Company director, Participant has been, and will continue to be, provided with Trade Secrets and/or Confidential Information. This information has been developed at great expense to Company and is necessary for Company to conduct its business.
(b)While Participant is a Company director, Participant will not directly or indirectly use or disclose any Trade Secret or Confidential Information, except in the interest and for the benefit of Company.
(c)After Participant’s Termination of Service for any reason, Participant will not directly or indirectly use or disclose any Trade Secret.
(d)For a period of twenty-four (24) months following the Participant’s Termination of Service for any reason, Participant will not directly or indirectly use or disclose any Confidential Information. This confidentiality provision is not intended in any way to modify or limit Participant’s ongoing duty to maintain the confidentiality of information as required under federal and state laws and regulations.
(e)For purposes of this Agreement, the term “Trade Secret” has that meaning set forth under applicable law. Participant shall not disclose any information that constitutes a trade secret as defined in § 134.90, Wis. Stats. for as long as the information continues to be a trade secret or any information where disclosure is otherwise restricted by federal, state or local laws and regulations.
(f)For purposes of this Agreement, the term “Confidential Information” means all non-Trade Secret information of, about or related to Company or provided to Company by its clients, vendors and suppliers that is not known generally to the public or Company’s competitors. Confidential Information includes, but is not limited to: (i) new products, product specifications, information about products under development, research, development or business plans, financial information, client lists, vendor or supplier lists, information about transactions with clients, pricing information, information relating to costs, business records, and employment records and policies (other than Participant’s own); (ii) information that is marked or otherwise designated or treated as confidential or proprietary by Company; and (iii) information received by Company from others which Company has an obligation to treat as confidential.
(g)Notwithstanding the foregoing, the terms “Confidential Information” and “Trade Secret” do not include, and the obligations set forth in this Agreement do not apply to, any information that: (1) can be demonstrated by Participant to have been known by Participant prior to Participant’s appointment as a director of the Company; (2) is or becomes generally available to the public through no act or omission of Participant; (3) is obtained by Participant in good faith from a third party who discloses such information to Participant on a non-confidential basis without violating any
5



obligation of confidentiality or secrecy relating to the information disclosed; or (4) is independently developed by Participant outside the scope of Participant’s role as a director of the Company without the use of Confidential Information or Trade Secrets. Nothing in this Agreement shall limit or supersede any common law, statutory or other protections of trade secrets where such protections provide the Company with greater rights or protections for a longer duration than provided in this Agreement. With respect to the disclosure of a Trade Secret and in accordance with 18 U.S.C. § 1833, Participant shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a Trade Secret that (i) is made in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, provided that, the information is disclosed solely for the purpose of reporting or investigating a suspected violation of law; or (ii) is made in a complaint or other document filed in a lawsuit or other proceeding filed under seal so that it is not disclosed to the public. Participant is further notified that if Participant files a lawsuit for retaliation by the Company for reporting a suspected violation of law, Participant may disclose the Company’s Trade Secrets to Participant’s attorney and use the Trade Secret information in the court proceeding, provided that Participant files any document containing the Trade Secret under seal so that it is not disclosed to the public, and does not disclose the Trade Secret, except pursuant to court order.
(h)These covenants are effective immediately and shall remain in force before and after the time the rights to Restricted Shares granted under this Agreement vest, and after such Restricted Shares are transferred by Participant. The parties intend that this Section 16 and each and all of its individual subparagraphs, provisions, and clauses are severable from any other provision of this agreement, as provided in Section 21, and are also severable from any other promise or duty owed by Participant to the Company.
(i)Participant agrees that each of these covenants is reasonably and properly necessary to protect the legitimate business interests of the Company. Participant acknowledges that damages for the violation of any of these covenants will be inadequate and will not give full, sufficient relief to the Company, and that a breach of any of these covenants will constitute irreparable harm to the Company. Therefore, Participant agrees that in the event of any violation of any of these covenants, the Company shall be entitled to compensatory damages and injunctive relief.
(j)Participant will reimburse and indemnify the Company for the actual costs incurred by the Company in enforcing any of these covenants, including, but not limited to, attorney’s fees reasonably incurred in enforcement activity.
(k)Notwithstanding anything herein to the contrary, in accordance with Rule 21F-17 under the Securities Exchange Act of 1934 and the rules promulgated thereunder, the Company shall not impede a Participant’s ability to communicate with the Securities and Exchange Commission or other governmental agencies regarding possible federal securities law violations (1) without the Company’s approval and (2) without having to forfeit or forego any resulting whistleblower awards, and the Company shall not enforce any provision of any policy to the extent such provision would be deemed to require the Company’s prior approval of such communication or forfeiture of any award, except to the extent otherwise permitted by Rule 21F-17.
Section 17.Breach of Restrictive Covenants. Except as otherwise provided by the Committee, notwithstanding any provision of the Plan to the contrary, if Participant breaches a non-competition, non-solicitation, non-disclosure, non-disparagement or other restrictive covenant set forth in an Award Agreement or any other agreement between Participant and the Company, whether during or after Participant’s Termination of Service, in addition to and not in limitation of any other rights, remedies, damages, penalties or restrictions available to the Company under the Plan, an Award
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Agreement, any other agreement between Participant and the Company, or otherwise at law or in equity, Participant shall forfeit or pay to the Company:
(a)Any and all outstanding Awards granted to Participant, including Awards that have become vested or exercisable;
(b)Any Shares held by Participant in connection with the Plan that were acquired by Participant after Participant’s Termination of Service and within the 12-month period immediately preceding Participant’s Termination of Service;
(c)The profit realized by Participant from the exercise of any stock options and SARs that Participant exercised after Participant’s Termination of Service and within the 12-month period immediately preceding Participant’s Termination of Service, which profit is the difference between the exercise price of the stock option or SAR and the Fair Market Value of any Shares or cash acquired by Participant upon exercise of such stock option or SAR; and
(d)The profit realized by Participant from the sale, or other disposition for consideration, of any Shares received by Participant in connection with the Plan after Participant’s Termination of Service and within the 12-month period immediately preceding Participant’s Termination of Service and where such sale or disposition occurs in such similar time period.
Section 18.Offset. The Company shall have the right to offset, from any amount payable or stock deliverable hereunder, any amount that Participant owes to the Company without the consent of Participant or any individual with a right to Participant’s Award
Section 19.Effect on Other Agreements. The foregoing provisions of Section14 (Service on Board of a Financial Services Organization), Section 15 (Protection of Leadership Pool), and Section 16 (Confidentiality) shall not be construed to supersede or alleviate any obligations of Participant to the Company with respect to any restrictive covenant, non-compete or confidentiality agreement otherwise binding on Participant, which shall remain in full force and effect to the extent provided in any such agreements, and in the event that a provision of such agreement shall conflict with any provision of this Award Agreement, Participant acknowledges and agrees that the provision which is most protective of the Company’s confidential or proprietary interests shall control. Notwithstanding the foregoing, the provisions of Section 14, Section 15 and Section 16 shall supersede and replace any similar restrictions included in previous Award Agreements.
Section 20.Notices. Any notice hereunder to the Company shall be addressed to it at its office, 401 Charmany Drive, Madison, WI 53719; Attention: Corporate Secretary, and any notice hereunder to Participant shall be addressed to him or her at the last home address on file with the Company. Either party may designate some other address at any time hereafter in writing.
Section 21.Severability. In the event any provision of the Agreement is held illegal or invalid for any reason, the illegality or invalidity will not affect the remaining provisions of the Agreement, and the Agreement shall be construed and enforced as if the illegal or invalid provision had not been included.
Section 22.Waiver of Jury Trial. EXCEPT TO THE EXTENT PROHIBITED BY STATE LAW, BY SIGNING THIS AGREEMENT, EACH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL ACTION, PROCEEDING, CAUSE OF ACTION OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
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THIS AGREEMENT, INCLUDING ANY EXHIBITS, SCHEDULES, AND APPENDICES ATTACHED TO THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (B) IT HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) IT MAKES THIS WAIVER KNOWINGLY AND VOLUNTARILY, AND (D) IT HAS DECIDED TO ENTER INTO THIS AGREEMENT IN CONSIDERATION OF, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
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IN WITNESS WHEREOF, the Company has caused this Award Agreement to be executed in its name and on its behalf, and Participant acknowledges understanding and acceptance of, and agrees to, the terms of this Award Agreement (including, but not limited to, the Waiver of Jury Trial provision set forth in Section 22), all as of the Grant Date.

                    FIRST BUSINESS FINANCIAL SERVICES, INC.
    By:         
    Print Name:     
    Title:     
    PARTICIPANT
        
    Print Name:     




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
October 29, 2021


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
October 29, 2021


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 September 30, 2021 (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
October 29, 2021
   
  /s/ Edward G. Sloane, Jr.
  Edward G. Sloane, Jr.
Chief Financial Officer
October 29, 2021