First Business Financial Services, Inc. · NASDAQ:FBIZ
First Business Financial Services — Q1 2020 Earnings Presentation
63 slides from First Business Financial Services's earnings presentation, May 6, 2020
Slide 1: Investor Presentation First Quarter 2020
INVESTOR PRESENTATION FIRST QUARTER 2020 Business: First Nasdaq: FBIZ
Slide 2: Forward-Looking Statements
Forward-Looking Statements When used in this presentation, and in any other oral statements made with the approval of an authorized executive officer, the words or phrases “may,” “could,” “should,” “hope,” “might,” “believe,” “expect,” “plan,” “assume,” “intend,” “estimate,” “anticipate,” “project,”
Slide 3: Table of Contents
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Slide 4: Company Overview
COMPANY OVERVIEW First Business:
Slide 5: Company Profile
Company Profile FBIZ BANKING: FBIZ TRUST $2.2Billion $1.7 Billion IN TOTAL ASSETS IN ASSETS UNDER MANAGEMENT & ADMINISTRATION Headquarters: Madison, WI Mission: Build long-term shareholder value as an entrepreneurial financial services provider to businesses, executives, and high net worth individua
Slide 6: Evolution of Success
Evolution of Success Aligned with the Financial Needs of Our Niche Client Base 1990 ) 1995 ) 1998 ) 2000 ) 2001 ) 2006 ) 2012 ) 2014 ) 2018 Greater Madison Southeast Northeast Kansas City Area Wisconsin Wisconsin Metro = | First Business
Slide 7: Evolution of Success
Evolution of Success Aligned with the Financial Needs of Our Niche Client Base Comarca Lending BUSINESS BANKING SPECIALTY FINANCE PRIVATE WEALTH GROWING OR MANAGING LEADING AN BUILDING AND Private Banking ‘ABUSINESS ESTABLISHED BUSINESS © MANAGING WEALTH 0a TREASURY MANAGEMENT PRVATE BANKING 7 RECEN
Slide 8: COVID-19 Response
COVID-19 RESPONSE First Business:
Slide 9: Business Continuity Plan
Business Continuity Plan Focus on Safety & Uninterrupted Client Service Employees — Safety and well-being is our #1 priority * Limited lobby hours * Transitioned over 90% of our employees to remote work * Regular communication and weekly open Q&A with CEO + No employees have been furloughed or laid
Slide 10: Paycheck Protection Program
Paycheck Protection Program Active Participation Propelled by SBA Expertise & Proactive Investments in Technology Nearly 60 Leveraged a — 600+ applications $8+ MILLION 26,000+ jobs employees, or 20% Prete ctent processed and in processing fees _ retained (based of the Company's portal to create an 3
Slide 11: Credit Quality
Credit Quality Modest Overall Exposure to Industries Most Impacted by COVID-19 and No Retail Consumer Portfolio Exposure to Stressed Industries Loan Modification Trend 4 (Unaudited) As of S300 99 ( in millions) March 31, 2020 458 Balances Outstanding by Risk Rating $250 % of Total Industries: Pass C
Slide 12: Robust Liquidity Position
Robust Liquidity Position Primary & Secondary Sources Provide Ample Liquidity During Uncertain Environment As of 3/31/20 ‘scans Cash Hols te Fede! Rerove Uneoprcat epost Pledged cans As of 4/30/20 Primary Sources: Excess Cash Held at the Federal Reserve + Collateral Value of Unencumbered Pledged Loa
Slide 13: Capital Strength
Capital Strength The Company's Capital Ratios Continue to Exceed the Highest Required Regulatory Benchmark Levels Total Risk-Based Capital Tier 1 Capital Tier 1 Leverage Capital 14% 12% 12% 12% 10% 10% 10% - - 8% 8% 8% 6% 6% 6% 4% 4 4% 4% 2% 2% 2% 0% 0% 0% 3/3119 12131119 3/31/20 3/31/19 12/31/19 3/
Slide 14: Quarterly Update
QUARTERLY Fi rst UPDATE Business”
Slide 15: First Quarter 2020 Summary
First Quarter 2020 Summary @ EARNINGS - Performance Tempered by $3.1 Million COVID-19 Related Provision ®@ REVENUE - Strong Fee Income Driven by Private Wealth and Commercial Lending @ BALANCE SHEET - Record Period-End Loans and In-Market Deposits ®@ KEY OPERATING TRENDS - Operating Fundamentals Rem
Slide 16: Quarterly Update - Earnings
Quarterly Update - Earnings Performance Tempered by $3.1 Million COVID-19 Related Provision $0.80 1.40% 16.00% $0.70 $0.67 $0.67 ¥20%| AOE BEE 00% 14.00% $0.60 1.00% | rg se 12.00% $0.50 00% 10.00% .80% $0.40 $0.38 0.62% 7.14% | 8.00% $0.30 oo 6.00% $0.20 0.40% 4.00% B46 0.20% 2.00% $0.00 0.00% 4 0.
Slide 17: Quarterly Update - Revenue
Quarterly Update - Revenue Strong Fee Income Driven by Private Wealth and Commercial Lending $10,000 30.00% eH 28.00% 7 $6,414 26.00% 2 $6,000 oO 8 2 24.00% © $4,000 2 22.00% $2,000 20.00% $0 | 18.00% Q1 2019 Q4 2019 Q1 2020 ™ Total Non Interest Income === % of Top Line Revenue ™ ™ Long Term Target
Slide 18: Quarterly Update - Balance Sheet
Quarterly Update - Balance Sheet Record Period-End Loans and In-Market Deposits 1 2 $1,715 $1,743 $1,657 : phil 78.00% 76.00% 74.00% 72.00% 70.00% 68.00% 66.00% 64.00% 62.00% Q1 2019 Q4 2019 Q1 2020 @ Period-End Loans & Leases ™ Period-End In-Market Deposits (1) === In-Market Deposit Ratio (2) "Pero
Slide 19: Quarterly Update - Key Operating Trends
Quarterly Update - Key Operating Trends Net Interest Margin, Excluding Fees In Lieu of Interest, Shows only Modest Compression Net Interest Margin Drivers of NIM Change NIM, Yields, and Costs 3.79% 3.73% 3.44% 5.89% 5.55% 3.73% 0.02% —% 5.04% — = 0.16% 0.01% 3.44% ao (0.26)%o aay% 3.79% 3.73% 10.22)
Slide 20: Quarterly Update - Key Operating Trends
Quarterly Update - Key Operating Trends Operating Fundamentals Demonstrate Earnings Power $105.0 $90.0 $ (Millions) = se epeeeaeog 2017 2018 2019 Q1 2020 Note: Netinteest income isthe sum of "Pure Ne Interest Income” and “Fees in Lew of Inert”. Noniterest income isthe sum of "Trust Fee income", "Oth
Slide 21: Long-Term Value Drivers
LONG-TERM VALUE First DRIVERS Business’
Slide 22: Long-Term Value Drivers
Long-Term Value Drivers Areas of Focus 999 9 Growth - Emphasis on Delivery of Above Average Organic Growth Over Acquisition and Optimization of Commercial Business Line Performance Asset Quality - Proven Financial Performance through Credit Cycles Profitability - Return to Above Average Profitabilit
Slide 23: Growth
Growth Emphasis on Delivery of Above Average Organic Growth Over Acquisition Core Deposit Growth (3) Revenue Growth 40 0% % FBIZ LOYR CAGR = 14% 40% FBIZ 10YR CAGR = 11% Peer Group 10YR CAGR = 3% Peer Group 1OYR CAG| 80% 30% 20% 20% 10% | 10% 0% 0% 10% 20% 10% -30% r T -20% - — - 440092 3 14 5 46 7
Slide 24: Growth
Growth Optimization of Commercial Business Line Performance Business Life Cycles Early Stage Adolescent Very High Growth & Operating High Growth & Positive Sustainable Growth & Highly Losses Contribution Profitable SBA Lending Accounts Receivable Financing Business Banking Vendor Financing Asset-Bas
Slide 25: Asset Quality
Asset Quality Maximize Financial Performance through Credit Cycles with Industry Expertise, Premier Clients, & Consistent Underwriting Net Charge-Offs / Average Loans 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 (1) — FBIZ —— Peer Group (2) Great Recession SS; Firs
Slide 26: Profitability
Profitability Return to Above Average Profitability through Optimization of Commercial Business Line Performance and Tangible Book Value Growth Return on Average Equity Tangible Book Value Growth 20.00% 10.0% TBV 10YR CAGR = 8% 15.005 9.0% ie $20.00 10.00% 8.0% $15.00 5.00% 7.0% I l $10.00 0.00% - 6
Slide 27: Operating Efficiency
Operating Efficiency Leverage Branch-Lite Model and Business-Banking Niche Total Deposits per Branch Total Revenue per FTE $400,000 $360 $350,000 $340 3.2 $300,000 320 g Z $300 = $250,000 5 3 3 $280 = $200,000 Ee a @ $260 $150,000 $240 $100,000 $220 $50,000 7 , $200 - 41°42 13 44 45 16 17 18 '19'20
Slide 28: Operating Efficiency
Operating Efficiency Proactive Investment in Technology First Business IT Strategy - Digital Transformation |__Solutions are Built on Top of Salesforce, Which is at the Core of our IT Strategy | Solutions are Built on Top of Salesforce, Which is at the Core of our IT Strategy SBA Lending Portal Quic
Slide 29: Strategic Plan
STRATEGIC First PLAN Business:
Slide 30: FBIZ Strategic Plan 2019-2023
FBIZ Strategic Plan 2019-2023 Objective First Business will excel by building the best team that works together to impact our clients’ success more than any other financial partner. 30 First Business
Slide 31: FBIZ Strategic Plan 2019-2023 Strategies
FBIZ Strategic Plan 2019-2023 4 Strategies Designed to Navigate the Company over a 5-Year Time Horizon strategy [gan EFFICIENCY Identify, attract, develop, and retain Increase | ternal ett sen tes: 1 high-performing talent to positively eC ciffersnunted dent impact the overall performance NUT Cet ee
Slide 32: FBIZ Strategic Plan 2019-2023
FBIZ Strategic Plan 2019-2023 We Define Success as Delivering Above Average Shareholder Return Total Shareholder Return - 2019 Actual | Actual 50% Goal 2019 | 1Q20 | 2023 Return on average equity (1) 12.55% | 7.14% | 13.50% si, 39% Return on average assets (1) 1.14% 0.62% 1.15% " 30% | Top line reve
Slide 33: Investment Rationale
INVESTMENT First RATIONALE Business:
Slide 34: Investment Rationale
Investment Rationale TRADING AT DISCOUNT TO PEER GROUP DIVIDEND YIELD HIGHER THAN PEER GROUP COMPETITIVE ADVANTAGE DRIVEN BY NICHE FOCUS, EMPLOYEE ENGAGEMENT, AND CLIENT SATISFACTION DIVERSIFIED MARGIN AND FEE REVENUE SCALABLE FRANCHISE POSITIONED FOR SUSTAINABLE GROWTH 99 9 99 34 First Business’
Slide 35: Trading at Discount to Peer Group
Trading at Discount to Peer Group Price / Tangible Book Value Price / Tangible Book December 2011 - March 2020 190.00 170.00 150.00 130.00 110.00 90.00 70.00 50.00 ‘TREE LELEETLELLEELLELCLIELCLCCLULCUELELLLL LILLE PRFS PESTS ISFESPSIPZSRSSSESTESPSSFERSRSSFERSS SSIS SERIF ER?E rz —Peer Group Median 1
Slide 36: Trading at Discount to Peer Group
Trading at Discount to Peer Group Price / LTM EPS Price / LTM EPS December 2011 - March 2020 21.00 19,00 17.00 15,00 13,00 14.00 9.00 7.00 5.00 Dec: —FBIZ_ —Peer Group Median 3 (5 First = J Business Note: Peer Group defines as publicy-ades banks wit otal assets belween $1 bilion and $4 bllon,
Slide 37: Dividend Yield Above Peer Group Median
Dividend Yield Above Peer Group Median Dividend Yield December 2011 - March 2020 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% TNAAN EN eM eee ett tee eee eeesaeeosgesr rt rrheseseeseeeegaRg eeasogses sees SPECS SE SESRESRES SES ESSE SEES EES PP FFF APPS PS APESPSRRESPEZRESPFRPESPERRESPIRRESZ IGE —FBIZ_
Slide 38: Competitive Advantage
Competitive Advantage Driven by Niche Business and Client-Centric Focus VALUE-ADDED EVENTS Manufacturing First First Business Invitational for Charity L la see Tech First G Commercial Real Estate Seminars Nonprofit Events Business Succession Seminars Business Seminars INDUSTRY PRACTICE GROUPS , ith
Slide 39: Competitive Advantage
Competitive Advantage Employee Engagement & Client Satisfaction The Best Team Wins | nl ACTIVE COMMUNITY INVOLVEMEN | Engaged Enplayees= Happy Clients RIGOROUS HIRING PROCESS | a FUN EMPLOYEE OUTINGS PEOPLE AND CULTURE { yoo CLIENT SATISFACTION FORMAL MENTOR PROGRAM | REGULAR SURVEYS AND FEEDBACK |
Slide 40: Diversified Margin & Fee Revenue
Diversified Margin & Fee Revenue Margin & Fee Revenue Diversification Driven by Suite of Commercial Products & Services Note: Average balance and revenue data or ho 4 2 3 Average Gross Loan and Lease Mix Net Interest Income / Total Revenue = 73% months ended March 31, 2020. ‘Commercial Lending - Oth
Slide 41: Scalable Franchise Positioned for Sustainable Growth
Scalable Franchise Positioned for Sustainable Growth * Organic growth remains the foundation for the future * Scale Private Wealth Management business in current markets outside of Madison * Significant commercial loan growth opportunity augmented by niche specialty finance lending programs *« Demon
Slide 42: Appendix
APPENDIX SUPPLEMENTAL DATA & NON-GAAP RECONCILIATIONS First Business:
Slide 43: Financial Performance
FINANCIAL First PERFORMANCE Business:
Slide 44: Net Interest Margin
Net Interest Margin Quarterly Trend Annual Trend 3.90% 3.90% 3.80% 3.80% 3.70% 3.70% 3.60% 3.60% 3.50% | = ee---- “<=. 3.50% | =——=—=—=-—H - - -B- 3.40% | il 3.40% | 3.30% 3.30% +S 1019 2019 3Q19 4Q19 120 (1) 2011 2012 2013 2015 «2016 «2017-2018 += -2019 ™ Net Interest Margin = = Long-Term Goal Net
Slide 45: Fee Income Ratio
Fee Income Ratio Quarterly Trend Annual Trend 30% 30% 25% === == == == 25% wees eee eee o 4, ¢ ¢ 20% 20% a ene 15% 15% | | | 10% 10% ’ 1019 2Q19 3Q19 4Q19 1020 2011 «2012, 2013, 2015 2016). 2017_ Ss 2018 = 2019 | Fee Income Ratio (1) = = Long-Term Goal | Fee Income Ratio (1) = = Long-Term Goal 1. Fe
Slide 46: Efficiency Ratio
Efficiency Ratio 70% 68% 66% 64% | 62% | 60% 58% 56% Quarterly Trend m 70% 68% 66% 64% 62% 60% 58% Annual Trend vl 1019 2019 3Q19 4Q19 | Efficiency Ratio (1) = = Long-Term Goal 1Q20 56% 2011 1. Efcency ratios @ non-GAAP measure defined as otal operating expente divided by lata operating revenue. See
Slide 47: In-Market Deposits / Total Bank Funding
In-Market Deposits / Total Bank Funding "? Quarterly Trend 1019 2019 Transaction Accounts [Bank Wholesale Funding 3Q19 4ai9 © Non-Transaction Accounts 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1020 100% 90% 80% 70% 60% 50% s 10% 10% 20% 10% 0% Annual Trend 2011 © 2012-2013 | Transaction Accounts 2
Slide 48: Loan & Deposit Composition
Loan & Deposit Composition “ Total Gross Loans & Leases Total Deposits lH cRENOO m cal ™ cREOO TE Money Market Accounts BE ut-Famiy 1B Transaction Accounts Construction im NB Tansacton Land Development we ikkisiciees BE Consumer & her | Wholesale deposits Mo 1-4Family I Direct Financing Leases 1. Pe
Slide 49: Commercial Banking Products & Services
COMMERCIAL . BANKING PRODUCTS i | & SERVICES usiness
Slide 50: Commercial Lending
Commercial Lending Superior Talent with Business Expertise Building Relationships in Midwest Geographic Footprint Product Profile * Target small- to medium-sized companies in our Wisconsin, Kansas, and Missouri markets « Lines of credit and term loans focused on businesses with annual sales of up to
Slide 51: Treasury Management
Treasury Management Superior Talent with Business Expertise Building Relationships in Midwest Geographic Footprint Product Profile * Target small- to medium-sized companies in our Wisconsin, Kansas, and Missouri markets * Comprehensive services for commercial clients to manage their cash and liquidi
Slide 52: Asset-Based Lending
Asset-Based Lending High-Yielding, Counter-Cyclical Product Complements Conventional Commercial Lending Product Profile * Target medium-sized companies nationwide * Primarily provide revolving lines of credit and term loans for leveraged buyouts, capital expenditures, working capital, bank debt refi
Slide 53: Accounts Receivable Financing
Accounts Receivable Financing High-Yielding, Counter-Cyclical Product Complements Conventional Commercial Lending Product Profile * Target small- to medium-sized companies nationwide * Primarily provide funding to clients by purchasing accounts receivable on a full recourse basis * Positioned to pro
Slide 54: Equipment Financing
Equipment Financing Aligned with the Equipment Loan and Lease Needs of our Niche Client Base Product Profile * Includes broad range of equipment finance products to address the financing needs of commercial clients in a variety of industries + Focus includes manufacturing equipment, industrial asset
Slide 55: Trust / Private Wealth
Trust / Private Wealth Wealth Management Services for Businesses, Executives, and High Net Worth Individuals Product Profile * Fiduciary and investment manager for individual and corporate clients, creating, and executing asset allocation strategies tailored to each client’s unique situation * Full
Slide 56: SBA Lending & Servicing
SBA Lending & Servicing Full Client Acquisition Strategy for Small Businesses Product Profile * Primarily originate variable rate term loans through the 7(a) program which typically provides a guaranty of 75% of principal and interest * Product offering is designed to generate new business opportuni
Slide 57: Non-GAAP Reconciliations
NON-GAAP RECONCILIATIONS First Business:
Slide 58: Efficiency Ratio
Efficiency Ratio Non-GAAP Reconciliation “Efficiency Ratio” is a non-GAAP measure representing non-interest expense excluding the effects of the SBA recourse provision, impairment of tax credit investments, losses or gains on foreclosed properties, amortization of other intangible assets, and other
Slide 59: Cost of Funds
Cost of Funds Non-GAAP Reconciliation “Cost of Funds” is defined as total interest expense on deposits and FHLB advances divided by the sum of total average deposits and total average FHLB advances. We believe that this measure is important to many investors in the marketplace who are interested in
Slide 60: Net Interest Margin, Excluding Fees in Lieu of Interest
Net Interest Margin, Excluding Fees in Lieu of Interest Non-GAAP Reconciliation “Net Interest Margin, Excluding Fees in Lieu of Interest” is a non-GAAP measure representing net interest income excluding the fees in lieu of interest divided by average interest-earning assets. Fees in lieu of interest
Slide 61: Pure Net Interest Income
Pure Net Interest Income Non-GAAP Reconciliation “Pure Net Interest Income" is defined as net interest income less fees in lieu of interest. "Fees in Lieu of Interest" is defined as prepayment fees, asset-based loan fees, and non-accrual interest. We believe that this measure is important to many in
Slide 62: Net Operating Income
Net Operating Income Non-GAAP Reconciliation “Net Operating Income" is a non-GAAP financial measure. We believe net operating income allows investors to better assess the Company's operating expenses in relation to its top line revenue by removing the volatility that is associated with certain one-t
Slide 63: First Business
First Business’
First Business Financial Services — Q1 2020 Earnings Presentation on 6ix