First Business Financial Services, Inc. · NASDAQ:FBIZ
First Business Financial Services — Q3 2016 Earnings Presentation
42 slides from First Business Financial Services's earnings presentation, Nov 18, 2016
Slide 1: Investor Presentation Third Quarter 2016
INVESTOR PRESENTATION THIRD QUARTER 2016 First Business
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
Table of Contents Company Overview Quarterly Update Investment Rationale... Pillars of Success .. : » Record of Strong Execution « Unique Competitive Advantages « Focused Strategic Objectives Appendix
Slide 4: Company Overview
COMPANY OVERVIEW
Slide 5: Company Profile
Company Profile FBIZ BANKING: FBIZ TRUST $1.8 Billion $1.2 Billion IN TOTAL ASSETS IN ASSETS UNDER MANAGEMENT & ADMINISTRATION Experienced leadership Entrepreneurial management style Insider ownership of 8% Business-focused model Client relationship focus with high touch service Niche acquisitions c
Slide 6: Evolution of Success
Evolution of Success Aligned with Financial Needs of Our Niche Client Base First Business Bank - First Business Bank Northeast Region’ First Business Bank - Alterra Milwaukee Bank Kenosha Region 2002 - 2005 2007 - 2011 2012 | 2013 2015 Milwaukee ea jased Source: FBIZ management
Slide 7: Geographic Footprint
Geographic Footprint Seattle, WA ‘Appleton, Wi Minneapolis, MN ‘Madison, WI Detroit, Mi Chicago, L- Cleveland, OH Denver,cO St Louis, MO Kansas Clty, KS, yy Hockessin, DE Charlotte, NC © Banking Office © Asset-Based Lending Business Development Office © Equipment Business Development Office @ Factor
Slide 8: Proven Leadership Team
Proven Leadership Team Experienced leadership team trained at large, complex institutions and significant time with FBIZ Title “ke vn veas: large, one experience institutions Corey Chambas President & CEO - FBFS x x x x Ed Sloane CFO - FBFS x Dave Seiler COO - FBFS x x x Michael Losenegger|Chief Cre
Slide 9: Quarterly Update
QUARTERLY UPDATE ue
Slide 10: Quarterly Update Third Quarter 2016
Quarterly Update Third Quarter 2016 r ) EXPENSE CONTROL INITIATIVES POSITION FOR RETURN TO POSITIVE OPERATING LEVERAGE r EXPANDED AND DIVERSIFIED REVENUE STREAMS CONTINUE BUT AT SLOWER RATE r CONTINUING TO BUILD SCALABLE FRANCHISE THROUGH INVESTMENTS IN TALENT r ELEVATED CREDIT COSTS AT ALTERRA, WHI
Slide 11: Quarterly Update Third Quarter 2016
Quarterly Update Third Quarter 2016 Operating Efficiency Diversified Revenue Streams Balance Sheet Growth Asset Quality Profitability $ in millions (except per share amounts) Top line revenue “) Total operating expenses Efficiency ratio ” Net interest income Gain on sale of SBA loans Trust and inves
Slide 12: Investment Rationale
INVESTMENT RATIONALE
Slide 13: Investment Rationale
Investment Rationale SCALABLE FRANCHISE = WELL POSITIONED FOR SUSTAINABLE GROWTH CLIENT ACQUISITION SBA STRATEGY = EARNINGS CATALYST P/E MULTIPLE AT A DISCOUNT TO PROXY PEER GROUP* COMPETITIVE DIVIDEND YIELD (cow2), If] SIGNIFICANT OPPORTUNITY TO STRENGTHEN IN-MARKET DEPOSIT MIX f Inc. (SYBT), TriSt
Slide 14: Client Acquisition Strategy
Client Acquisition Strategy Purposeful & Temporary Slowdown in SBA Production, Long Term Vision Remains Intact EARNINGS CATALYST 4 * EARNING ASSET GROWTH « IN-MARKET DEPOSIT GROWTH FEE INCOME 4 EPS GROWTH Source: FBIZ management, 1 the sale of SBA loans f 10, 2016 from SBA by Alterra Bank and Fi ("B
Slide 15: Client-centric Focus with High Touch Service
Client-centric Focus with High Touch Service ©FBIZADVANTAGE FIRST BUSINESS SEMINARS & EVENTS EXPO & CONFERENCE —— FIRST BUSINESS PRESENTS —— O, Enter prising « ¢ MANUFACTURING FIRST A NONPROFITS Gy FAM ra ILY INDUSTRY PRACTICE GROUPS LN ~_ s MANUFACTURING EMERGING COMMERCIAL NOT FOR FOOD & PROFESSIO
Slide 16: Significant Opportunity to Strengthen In-Market Deposit Mix
Significant Opportunity to Strengthen = In-Market Deposit Mix = Dane County, WI Waukesha County, WI Fox Valley, WI" Alterra Bank Market” (Largest 3 banks 38%) (Largest 3 banks 33%) (Largest 3 banks 48%) (Largest 3 banks 42%) US Bank 12% Commerce Bank 13% FBIZ: 7% BIE 28 FBIZ: 1% FBIZ: 0.5% $13.9 Bil
Slide 17: FBIZ Valuation - Price Appreciation
FBIZ Valuation - Price Appreciation % Price Increase Since 2012 Common Stock Offering (| 3, 2012 - 30, 2016) -20% Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16
Slide 18: FBIZ Valuation - P/E Multiple
FBIZ Valuation - P/E Multiple P/E Trend Since 2012 Common Stock Offering ( ber 3, 2012 - ber 30, 2016) 10x pos 8x 6x 4x 2x x Dec-12 Mar-13 Jun-13_ Sep-13_ Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16
Slide 19: FBIZ Valuation - Dividends per Share
FBIZ Valuation - Dividends per Share 26% $0.44 CAGR $0.14 2010 2015 @ Total Annual Dividends per Share $0.14 5 $0.12 | $0.10 $0.08 + $0.06 + $0.04 4 $0.02 } $0.00 ~ r2.50% 2Q15 3Q15 4Qis 1Q16 2Q16 3Q16 Dividends per Share === Dividend Yield
Slide 20: Pillars of Success
Pillars of Success Foundation for the Future SSS —— —— ———— RECORD OF UNIQUE FOCUSED STRONG COMPETITIVE STRATEGIC
Slide 21: Pillars of Success
Pillars of Success Foundation for the Future RECORD OF STRONG UNIQUE FOCUSED COMPETITIVE STRATEGIC
Slide 22: Record of Strong Execution
Record of Strong Execution Key Objectives DRIVE TOP LINE REVENUE GROWTH ACHIEVE e¢ +1% ROA e +12% ROE e ABOVE MARKET GROWTH STRENGTHEN IN-MARKET DEPOSIT MIX GENERATE CONSISTENT, STRONG PROFITABILITY DELIVER EPS GROWTH 22
Slide 23: Top Line Revenue Growth
Top Line Revenue Growth SBA Slowdown & Tepid Loan Production Lead to Lower Near Term Revenue Growth Expectations $25.0 14% CAGR $76M $20.0 wn Pp w i—} Millions $39M $10.0 $5.0 $0.0 1! 4Qi 1Q1 2Q1 16 2010 2015 3Q15 Qis Q16 Q1i6 3Q: | NetInterest Income ™ Non-Interest Income Source: SEC filings and FB
Slide 24: Strengthen In-market Deposit Mix
Strengthen In-market Deposit Mix Focus on Transaction Accounts to Reduce Cost of Funds $1,800 4 1.00% 24% CAGR 4 $397M $1,500 L 0.80% $1,200 { o +0.60% S 2 $900 | = + 0.40% $600 } $300 | [ °-20% $o 0.00% 2010 2015 3Q15 4Qis 1Q16 2Q16 3Q16 (EEE Transaction Accounts? Wholesale Non- NIB , || Deposits?
Slide 25: Generate Consistent, Strong Profitability
Generate Consistent, Strong Profitability Efficient Operating Model Drives Bottom Line over the Long Term Net Interest Margin 4.50% > 4.25% + 4.00% + 3.75% 4 3.50% 4 3.25% 4 3.00% + 2.75% +4 2.50% T 3Q15 4Qis 1Q16 Net interest Margin Source: SEC filings and FBIZ management. 2Q16 Goal 3Q16 Return on
Slide 26: Deliver EPS Growth
Deliver EPS Growth Drives Shareholder Value $0.60 5 1.90 $0.50 4 59% $ CAGR $0.40 | $0.30 + $0.20 + $0.185 $0.10 + 2010 2015 $0.00 lm Diluted Eps 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 GB Diluted Eps M@MM__Dividends per Share
Slide 27: Pillars of Success
Pillars of Success Foundation for the Future RECORD OF UNIQUE STRONG COMPETITIVE STRATEGIC
Slide 28: Unique Competitive Advantages
Unique Competitive Advantages Key Themes If] Efficient Operating Model Efficient Funding Strategy iN SUCCESSFUL ; NICHE Strong Credit Quality COMMUNITY » BUSINESS BANK Client-Centric Focus with High Touch Service 7, Superior Talent with Business Expertise
Slide 29: Efficient Operating Model
Efficient Operating Model HIGH EFFICIENCY "BUSINESS BANK" OPERATING MODEL ¢ Limited branch network ¢ Invest in technology ¢ Products tailored to serve businesses and their owners 9% EFFICIENCY RATIO EFFICIENCY RATIO. Total Loans Outstanding per FTE Deposits Per Location $8,000 $700 $7,000 $600 6,000
Slide 30: Efficient Funding Strategy
Efficient Funding Strategy Mitigates Interest Rate Risk Continue to leverage commercial relationships to attract in-market transaction deposits Maintain wholesale funding within Board- monitored limits — Match-funding fixed-rate term loans with wholesale funding locks in interest rate spread —WAOM'
Slide 31: Strong Credit Quality
Strong Credit Quality Credit Culture Helps Safeguard Shareholder Investment Over the Long Term Net Charge-Offs/Avg Loans Sustained lower levels of net charge-offs through the credit cycle driven by consistent underwriting standards. 1.6% 4 1.4% 4 * Credit underwriting through a committee process is
Slide 32: Superior Talent with Business Expertise
Superior Talent with Business Expertise Engaged Employees = Happy Clients ENGAGED EMPLOYEES Source: Itsech, Ph.D. - Executive Training & Consulting AJD Power customer satisfaction survey for retail banks in the Midwest has an average of 79% satisfaction in 2015 and the top performer is at 82%. RIGOR
Slide 33: Pillars of Success
Pillars of Success Foundation for the Future FOCUSED STRATEGIC
Slide 34: Focused Strategic Objectives
Focused Strategic Objectives If] Opportunistically Invest to Support Organic Growth LONG-TERM \f] Complement Organic Growth with Niche Acquisitions FUTURE SUCCESS \f] Expanded and Diversified Revenue Streams
Slide 35: Opportunistically Invest to Support Organic Growth
Opportunistically Invest to Support Organic Growth Investing for the Future Conversion to industry leading CRM in 2015 Data warehouse/BI implementation in 2015 Investments in Technology Expand marketing/sales automation in 2016 Leverage BI suite in 2016 to enhance budget/forecast FOUNDATION process
Slide 36: Complement Organic Growth with Niche Acquisitions
Complement Organic Growth with Niche Acquisitions ¢ ORGANIC GROWTH REMAINS THE FOUNDATION FOR THE FUTURE e HOWEVER, OUR SUCCESS CREATES OPPORTUNITIES FOR ACQUISITIONS m= SPECIALTY FINANCE ==> REGISTERED INVESTMENT ADVISORY FIRMS ==> BUSINESS-FOCUSED COMMUNITY BANKS 36
Slide 37: Increase Percentage of Fee Income
Increase Percentage of Fee Income Additional Fee Income Generating Services $6.0 7 $5.0 | $4.0 | Millions uw Ww N wo °o o wn ial o nw = o 3Q15 4Qis 1Q16 Gain on Sale of service Gain on Loan GH residential GB one HE charges on WB ssccrsce, 3 Loans Fees Mortgages Deposits seeeee Historic % Target —— _
Slide 38: Appendix
APPENDIX SUPPLEMENTAL DATA & NON-GAAP RECONCILIATIONS
Slide 39: Efficiency Ratio
Efficiency Ratio (dollars in thousands) Non-interest expense Gain (loss) on foreclosed properties Amortization of other intangible assets Recourse reserve Impairment of tax credit investments Total operating expense Net interest income Non-interest income Realized gain on securities Top line revenue
Slide 40: Deposit Cost
Deposit Cost Cost of Total Deposits e “Cost of Total Deposits” is defined as total interest expense on deposits divided by total average deposits. "Cost of Total In-Market Deposits" is defined as total interest expense on in-market deposits divided by total average in-market deposits. In-market depo
Slide 41: Loan and Lease Composition
Loan and Lease Composition September 31 f December 31, ($000) 2016 Total 2015 Commercial and Industrial $ 464920 32% $ 472,193 Commercial Real Estate - Owner Occupied 169,170 12% 176,322 Commercial Real Estate - Non-Owner Occupied 483,540 32% 436,901 Construction 110,426 8% 100,625 Land development
Slide 42: First Business
First Business YOUR SUCCESS COMES FIRST.
First Business Financial Services — Q3 2016 Earnings Presentation on 6ix