First Business Financial Services, Inc. · NASDAQ:FBIZ
First Business Financial Services — Q4 2018 Earnings Presentation
53 slides from First Business Financial Services's earnings presentation, Jan 30, 2019
Slide 1: Investor Presentation Fourth Quarter 2018
INVESTOR PRESENTATION FOURTH QUARTER 2018
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 ... Earnings Catalysts .. Investment Rationale ........0.00.0.00.0000 Financial Performance .............0..0000065 Appendix..........0.0... NIN [Re ISIS 1G 10 1
Slide 4: Company Overview
COMPANY OVERVIEW
Slide 5: Company Profile
Company Profile FBIZ BANKING: FBIZ TRUST $2.0 Billion $1.6 Billion ADMINISTRATION Headquarters: Madison, WI Mission: Build long-term shareholder value as an entrepreneurial financial services provider to businesses, executives and high net worth individuals + Experienced leadership + Entrepreneurial
Slide 6: Evolution of Success
Evolution of Success Aligned with the Financial Needs of Our Niche Client Base +—, o— o— O— < ; . O— 0 —0— 1990 )1995 ) 1998 ) 2000 ) 2001 ) 2006 ) 2012 ) 2014 ) 2018 ° ° oO oO : Northeast Kansas City Madison Milwaukee Wieeeain
Slide 7: Evolution of Success
Evolution of Success Aligned with the Financial Needs of Our Niche Client Base BUSINESS ayy BANKING Cony SPECIALTY FINANCE GROWING OR MANAGING __LEADING AN BUILDING AND. ENJOYING "A BUSINESS [ESTABLISHED BUSINESS MANAGING WEALTH RETIREMENT
Slide 8: Leadership Team
Leadership Team Experienced team trained at large, complex institutions Corey A. Chambas Edward G. Sloane Jr. Michael J. Losenegger Barbara McCarty Conley PRESIDENT AND CEO CCHIEF FINANCIAL CHIEF CREDIT OFFICER GENERAL COUNSEL OFFICER Jodi A. Chandler Mark J. Meloy Daniel S. Ovokaitys Brendan W.Free
Slide 9: Quarterly Update
QUARTERLY UPDATE
Slide 10: Quarterly Update
Quarterly Update Fourth Quarter 2018 ROBUST DEPOSIT GENERATION SUPPORTS RECORD LOAN BALANCES AND STRONG NET INTEREST MARGIN DEPOSIT CAMPAIGNS DESIGNED FOR HIGH NET WORTH CLIENTS COMPLEMENT COMMERIAL BANKING RELATIONSHIPS, DRIVING RECORD IN-MARKET GROWTH IMPROVING OPERATING FUNDAMENTALS MUTED BY LEGA
Slide 11: Quarterly Update
Quarterly Update Fourth Quarter 2018 $n millions (except per share amounts)|_Q4 2017 42018 Top line revenue ™ Total non-inter Operating Efficiency Taual serait bees Efficiency te Net inter $15,358 Gain on sale of SBA loans $0,050 ified Revenue Seas ‘Trust and investment servic S17; e charges on depo
Slide 12: Quarterly Update: Net Interest Margin Analysis
Quarterly Update Fourth Quarter 2018 Net Interest Margin Analysis 1.00% Cumulative Beta Trends 100% ce Initial 2015 Rate Hike 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 3016 4016 1017 2Q17 3Q17 4017 1018 2018 3018 4018 “= Vield on interest-Earning Assets == Cost of Funds — Net interest Margin Effective Fed
Slide 13: Quarterly Update: FBIZ Operating Trends
Quarterly Update Fourth Quarter 2018 FBIZ Operating Trends $25,000 ‘revo Reoring volte $20,000 $15,000 $10,000 $5,000 $0 a a oe a a a a as 2017 2017 207 2017 2018 2018 2018 2018 ms Operating Expenses mmm Pure Netinterestincome’ mam Trust Fe income mes other Fee income seem Service Charges Feesintieu
Slide 14: Quarterly Update: Vendor Financing Program
Quarterly Update Fourth Quarter 2018 Vendor Financing Program Mission: Partner with vendors who operate within distinct vertical market segments making First Business the financing choice to accelerate the sale of equipment to their customers. Market Segments Established Q3 2018 and provides small t
Slide 15: Earnings Catalysts
EARNINGS CATALYSTS
Slide 16: Earnings Catalysts
Earnings Catalysts A A 7 7 16
Slide 17: Organic Loan and Lease Growth
Organic Loan and Lease Growth Differentiated approach to business banking and investment in talent drives current success and long-term organic loan and lease growth expectations Period End Loans and Leases ‘Commercial Lending BDO Growth ‘+ 13 new hires since Q2 Sato = 2017 throughout our Milwaukee,
Slide 18: Asset Quality Improvement
Asset Quality Improvement ‘* Fourth quarter 2018 decrease in NPAs primarily reflects the partial payoff of the previously disclosed $9.1 mi fully-collateralized asset-based loan + Relative net charge-off comparison substantiates commitment to credit culture and ability to protect the shareholders’ l
Slide 19: SBA Lending Growth and Profitability
SBA Lending Growth and Profitability SBA lending primed for profitable growth following significant investments in platform and new producers SBA Lending Core Competencies ‘SBA Lending BDO Growth + Experienced SBA functional experts hired 8 late 2016, early 2017 to. lead SBA credit, operations and 6
Slide 20: Continue to expand wealth management business
Continue to expand high performing wealth management business throughout FBIZ footprint = | * Cash additions from existing relationships and successful business development efforts added $93.5 million new trust assets under management and administration during the fourth quarter of 2018, offset by m
Slide 21: Investment Rationale
INVESTMENT RATIONALE
Slide 22: Investment Rationale
Investment Rationale P/E MULTIPLE AT A DISCOUNT TO PEER GROUP DIVIDEND YIELD SIGNIFICANTLY HIGHER THAN PEER GROUP AVERAGE COMPETITIVE ADVANTAGE DRIVEN BY NICHE FOCUS DIVERSIFIED MARGIN AND FEE REVENUE SCALABLE FRANCHISE POSITIONED FOR SUSTAINABLE GROWTH $5MM STOCK REPURCHASE PLAN ANNOUNCED IN DECEMB
Slide 23: P/E Multiple at a Discount to Peer Group
P/E Multiple at a Discount to Peer Group” P/E Trend Dec-17 Jan-18Feb-18_Mar-I8_ Apr-I8 May-18Jun-18_Jul18 —Aug-18Sep-18 Oct-18 Nov-l8_Dec-18 —FBIZUS —Peer Group Average Source: SA Gal Maret tesigence. P/E Trend represent pis one the month 5. 1 The rise Busines pee groupies Community ancl erpraton (T
Slide 24: Dividend Yield Above Peer Group Average
a 1. Dividend Yield Above Peer Group Average” = | Dividend Yield Trend a Me 25mm 20% nr 150% 200% oso a na he ae oe ee ee ee ee Sea Oe as (es ei an (ero
Slide 25: Competitive Advantage Driven by Niche Business and Client-Centric Focus
Competitive Advantage Driven by Niche Business and Client-Centric Focus VALUE-ADDED EVENTS Manufacturing First LL. Fist Business invitational for Charity (7, DA Tech first SG Commercial Real Estate Seminars Nonprofit Events Business Succession Seminars Business Seminars INDUSTRY PRACTICE GROUPS a aN
Slide 26: Diversified Margin and Fee Revenue
Diversified Margin and Fee Revenue Margin and fee revenue diversification driven by suite of commercial products and services ‘Average Gross Loan and Lease Mix Commercial Lending = CRE NOO Commercial Lending - Other Commercial tending -C&t Commercial Lending CREO ‘asset Based tending SBA Lending Equ
Slide 27: Scalable Franchise Positioned for Sustainable Growth
Scalable Franchise Positioned for Sustainable Growth © Organic growth remains the foundation for the future * Improving credit profile — While non-accrual loans increased in the second quarter of 2018, a large recovery and a large payoff were recognized in the third and fourth quarters, respectively
Slide 28: Financial Performance
FINANCIAL PERFORMANCE
Slide 29: Net Interest Margin
Net Interest Margin ‘Annual Trend 3.50% eee eeee eeee 2 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 2014 2015 2017 2018 Net Interest Margin = = Long-Term Goal Quarterly Trend 4.00% 3.50% ee —— —— a 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 4037 3018 2038 3018 4ai8 Net interest Margin = = Long-Term Goa
Slide 30: Fee Income Ratio
Fee Income Ratio = Annual Trend = 20% a ee 15% 10% 5% 0% 2014 2015 2016 2017 2018 IB Fee Income Ratio = = Long-Term Goal Quarterly Trend 30% 25% ww ewe ewe eee ee we eee eee eee 20% 15% 10% 5% 0% 4oa7 1018 2a18 3018 Fee Income Ratio = = Long-Term Goal ais Source: Su? Got Markt tigen ee Income Rat fi
Slide 31: Efficiency Ratio
Efficiency Ratio Annual Trend 70% 70% 66% 62% 58% 54% 50% Efficiency Ratio = = Long-Term Operating Range Quarterly Trend 74% 70% 66% 62% |- ae a SEE a —] 58% jL — —— a ee —4 54% 50% 4017 1018 2018 3018 aais Efficiency Ratio — = Long-Term Operating Range Source St Got! Maret metlgene, fiency ats 3 no
Slide 32: In-Market Deposits / Total Bank Funding
In-Market Deposits / Total Bank Funding Quarterly Trend 300% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Annual Trend 204 2015 2016 2017 2018 (MTeansaction Accounts Non Transaction Accounts HE Bank Wholesale Funding Target Operating Range aan7 sais 2ais sais aqis Transaction Accounts —|_Non-Transaction A
Slide 33: Annualized Net Charge-Offs / Average Loans
Annualized Net Charge-Offs / Average Loans Annual Trend 25% 2.0% 15% 1.0% 0.5% 0.0% 2008 2008 2010 2011 2012 2013, 2014 2015 2016 2017 2018 — rz = US. Commercial Bank $18-$38 Quarterly Trend 0.8% 0.6% 0.4% 0.2% 0.0% 0.2% + 4017 1018 2018 3ai8 408 — rz US. Commercial Banks $18-$38 33
Slide 34: Return on Average Assets
Return on Average Assets ‘Annual Trend 1.20% 1.00% a aa a a a aaa 0.80% 0.60% 0.40% 0.20% 0.00% 2014 2015 2016 2017 2018 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% lm ROAA = = Long-Term Goal Source: SAP Gotl marker netigene 34
Slide 35: Return on Average Equity
Return on Average Equity ‘Annual Trend 16% 10% 12% ee eww ew ee eee 10% 8% 6% a% 2% 0% 2014 2015 2016 2017 2018 TE ROAE = = Long-Term Goal Quarterly Trend 16% 14% eee- 12% weee- = — 2 = = a= 10% 3% 6% a% 2% 0% 4017 1018 2018 3018 ais Mm ROAE = = Long-Term Goal Source St Got Maret nttigenee
Slide 36: Top Line Revenue Growth
Top Line Revenue Growth ‘Annual Trend 2014 2015, 2016 2017 2018 = US. Commercial Banks $18-$38 —= FBIZ Quarterly Trend 4017 1018 2018 3018 4018 US, Commercial Banks $18-$38 —= FBIZ Source: SA? Got Markt tigen. Gurr Tend represents yer over yao ine revenue growth. Top ne Revene is defined aot no ret
Slide 37: Loan and Deposit Composition
Loan and Deposit Composition Total Gross Loans & Leases Total Deposits 37
Slide 38: Efficient Funding Strategy
Efficient Funding Strategy Mitigates Interest Rate Risk + Leverage commercial relationships to attract in-market transaction deposits ‘© Maintain bank wholesale funding’ within Board-monitored limits ~ Match-funding fixed-rate term loans with Bank wholesale funding locks in interest rate spread —WAO
Slide 39: Appendix: Supplemental Data & Non-GAAP Reconciliations
APPENDIX SUPPLEMENTAL DATA & NON- GAAP RECONCILIATIONS
Slide 40: Commercial Banking Products & Services
COMMERCIAL BANKING PRODUCTS & SERVICES
Slide 41: 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 42: 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 liquidity,
Slide 43: 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 ref
Slide 44: Receivable Financing
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 provide co
Slide 45: 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 a
Slide 46: 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 f
Slide 47: 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 opportun
Slide 48: Non-GAAP Reconciliations
NON-GAAP RECONCILIATIONS
Slide 49: 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 d
Slide 50: 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 51: 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 the sum of prepayment fees, non-accrual interest recoveries, and asset-based loan fee: lieu of interest. We believe th
Slide 52: 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-tim
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First Business Financial Services — Q4 2018 Earnings Presentation on 6ix