First Business Financial Services, Inc. · NASDAQ:FBIZ
First Business Financial Services — Q3 2019 Earnings Presentation
55 slides from First Business Financial Services's earnings presentation, Nov 5, 2019
Slide 1: Investor Presentation Third Quarter 2019
= First Business INVESTOR PRESENTATION THIRD QUARTER 2019 BANKING BEYOND EXPECTATIONS
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 ...................0cccccccccccceseceesetseeeeeeeeeseeeenees 4 Quarterly Update cccccscsecescsssseressaessnngtecieesvceremncemceetes 9 Investment Rationale ..0..........0..cc ccc cececeeeeeeteeeeteeeeteeeeneeee 17 Strategic PLA o.oo... cccccccccceeeceeeeceesseeesee
Slide 4: Company Overview
First Business COMPANY OVERVIEW BANKING BEYOND EXPECTATIONS
Slide 5: Company Profile
Company Profile = | FBIZ BANKING: FBIZ TRUST $2.1 Billion $1.8 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 ¢ Entreprene
Slide 6: Evolution of Success
Evolution of Success Aligned with the Financial Needs of Our Niche Client Base Asset-based Company Retirement Lending Plan Services Business Banking Equipment Private Wealth Services Finance Services eo; J O: = | Accounts Receivable SBA Vendor Bank Financing Lending Finance Consulting I 1990 ) 1995
Slide 7: Evolution of Success
Evolution of Success Aligned with the Financial Needs of Our Niche Client Base Comarca Lending BUSINESS == freasury Management BANKING Company Ratiement SPECIALTY FINANCE PRIVATE ‘GROWING OR MANAGING LEADING AN BUILDING AND ‘A BUSINESS ESTABLISHED BUSINESS MANAGING WEALTH Eauipment Finance as san "T
Slide 8: Leadership Team
Leadership Team Experienced team trained at large, complex institutions Corey A. Chambas Edward G. Sloane Jr. David R. Seiler Michael/J.Losenegger Barbara McCarty Conley PRESIDENT AND CEO CHIEF FINANCIAL CHIEF OPERATING CHIEF CREDIT OFFICER GENERAL COUNSEL OFFICER OFFICER Jodi A. Chandler Mark J. Me
Slide 9: Quarterly Update
First Business QUARTERLY UPDATE BANKING BEYOND EXPECTATIONS
Slide 10: Quarterly Update: Loan and Deposit Growth
Quarterly Update Average Loan Growth Supported by Strong In-Market Deposit Growth $2,000 78.00% 76.00% $1,750 $1,694 SULTS $1,500 g e $1,250 3 ot a $1,000 $750 $500 Q3 2018 Q2 2019 Q3 2019 TH Avg Gross Loans & Leases. Ml Avg In-Market Deposits == In-Market Deposit Ratio’ 1, In-Market Deposit Ratio i
Slide 11: Quarterly Update: Fee Income
Quarterly Update Robust and Diversified Fee Income Reaches Long-Term Goal of 25% of Top Line Revenue $7,000 $6,000 $5,000 $ (Thousands) $4,000 $3,000 $2,000 Q3 2018 Q2 2019 ™@ Total Non Interest Income === % of Top Line Revenue Q3 2019 ™ = Long Term Target 30.00% 29.00% 28.00% | 27.00% 26.00% 25.00%
Slide 12: Quarterly Update: Asset Quality
Quarterly Update Asset Quality Improvement Continues $40.0 $30.0 $20.0 $ (Millions) $10.0 $0.0 + $32.1 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% Q3 2018 Q2 2019 Q3 2019 HH Non-Performing Assets ===" NPA/Total Assets. ~ 0.00% 12
Slide 13: Quarterly Update: Operating Efficiency Trends
Quarterly Update Operating Efficiency Trends Net Interest Income Non-Interest Income $18 4 $6.0 4 $5.8 $5.8 | $5.5 oe $5.0 sat $4 = $45 $12 | $4.0 $10 ° $3.5 03 2018 Q2 2019 03 2019 $3.0 Q3 2018 2 2019 Q3 2019 TE PureNetinterest income’ fl Feesin Liew of interest? Efficiency Ratio Operating Expense’
Slide 14: Quarterly Update: Operating Fundamentals
Quarterly Update Operating Fundamentals Demonstrate Earnings Power @37019inpacedoy omnes totaling $308, to exercise call options on brokered cDs $5.0 $0.0 $0.0 032017 Q42017, = «Q12018 «= a2 2018 = 3.2018 «=a 2018 «= 2019» 22019 a3 2019 Operating Expense I Pure Net Interest Income’ Trust Fee Income
Slide 15: Vendor Financing Program
Quarterly Update Vendor Financing Program Provides Stable Growth and Strong Yields 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 Seg
Slide 16: Vendor Financing Program Portfolio Analysis
Quarterly Update Vendor Financing Program Provides Stable Growth and Strong Yields Millions $45.0 $40.0 $35.0 $30.0 $25.0 $20.0 $15.0 $10.0 Portfolio Analysis 12/18 1/19 2/19 3/19 4/19 5/19 6/19 7/19 8/19 9/19 | Average Gross Loans =" Average Yield 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% © Provides sma
Slide 17: Investment Rationale
First Business INVESTMENT RATIONALE BANKING BEYOND EXPECTATIONS
Slide 18: Investment Rationale
Investment Rationale ®@ 2019 TOTAL SHAREHOLDER RETURN OUTPERFORMS PEER GROUP P/E MULTIPLE AT A DISCOUNT TO PEER GROUP DIVIDEND YIELD HIGHER THAN PEER GROUP COMPETITIVE ADVANTAGE DRIVEN BY NICHE FOCUS DIVERSIFIED MARGIN AND FEE REVENUE 99999 SCALABLE FRANCHISE POSITIONED FOR SUSTAINABLE GROWTH 18
Slide 19: Total Shareholder Return Outperforms Peer Group
Total Shareholder Return Outperforms Peer’ 2019 Total Shareholder Return 25% 15% ——=FBIZ ———Peer Group Median -—=——=S&P 500 ‘Source; S&P Global Market Intelligence. Total shareholder return represents data from 1/2/2019 te 9/30/2019, 1, American National Bankshares Inc. (AMNB), Bridgewater Bancshare
Slide 20: P/E Multiple at a Discount to Peer Group
P/E Multiple at a Discount to Peer Group’ P/E Trend 15x 1x 9x 8x Sep-18 Oct-18 Nov-18 Dec-18Jan-19_— Feb-19_- Mar-19Apr-19» May-19 Jun-19_—Jul-19._- Aug-19_—Sep-19 —FBIZ-US +——Peer Group Median Source: S&P Global Market intelligence. P/E Trend represents price to next twelve months EPS. A. American
Slide 21: Dividend Yield Above Peer Group Average
Dividend Yield Above Peer Group Average’ On January 25, 2019, FBIZ Announced 7th Consecutive Annual Dividend Increase Dividend Yield Trend 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19_ May-19 Jun-19—Jul-19_ Aug-19 Sep-19 —FBIZ-US ——Peer Grou
Slide 22: Competitive Advantage Driven by Niche Focus
Competitive Advantage Driven by Niche Business and Client-Centric Focus oo 4 eleclln Commercial Real Estate VALUE-ADDED EVENTS Ci Manufacturing First First Business Invitational for Charity Tech First Commercial Real Estate Seminars Nonprofit Events Business Succession Seminars Business Seminars IND
Slide 23: 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 my Commercial Lending - CRE NOO my Commercial Lending - Other* jm Commercial Lending - C& my Commercial Lending - CREOO Asset-Based Bending j
Slide 24: Scalable Franchise Positioned for Sustainable Growth
Scalable Franchise Positioned for Sustainable Growth © Organic growth remains the foundation for the future e Progress in reducing credit risk in SBA legacy portfolio will position us for future success despite some potential short-term credit costs ¢ Significant commercial loan growth opportunity w
Slide 25: Strategic Plan
First Business STRATEGIC PLAN BANKING BEYOND EXPECTATIONS
Slide 26: 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. 26
Slide 27: Strategies Designed to Navigate the Company over the Next 5 Years
FBIZ Strategic Plan 2019-2023 4 Strategies Designed to Navigate the Company over the Next 5 Years strategy (ea ER CENG Bs if Increase internal efficiencies, strategy deliver a differentiated client experience and drive client D Identify, attract, develop, and retain 1 high-performing talent to posit
Slide 28: How Will We Define Success?
FBIZ Strategic Plan 2019-2023 How Will We Define Success? RETURN ON EQUITY 2 13.50% RETURN ON ASSETS 2 1.15% ; \ TOP LINE REVENUE GROWTH 2 10% PER YEAR DELIVER ABOVE IN-MARKET DEPOSITS TO Ti AVERAGE TOTAL FUNDING 2 70% SHAREHOLDER RETURN EMPLOYEE ENGAGEMENT SURVEY RI 80% AND SURVEY PARTICIPATIO. CLI
Slide 29: Cascade Plan Throughout the Company
FBIZ Strategic Plan 2019-2023 Cascade Plan Throughout the Company The purpose of cascading is to link the strategies across business lines and support areas, achieving unparalleled alignment with ALL employees. & GOALS SUPPORT AREA PLAN
Slide 30: Financial Performance
First Business FINANCIAL PERFORMANCE BANKING BEYOND EXPECTATIONS
Slide 31: Net Interest Margin
Net Interest Margin Annual Trend 4.00% 3.50% e---- e265 e==5 eeeee 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% , 2014 2015 2016 2017 3019 impacted by MH Net Interest Margin = = Long-Term Goal ub debt and brokered CD Quarterly Trend 4.00% 3.50% a ===. —==- eee eee 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.
Slide 32: Fee Income Ratio
Fee Income Ratio Annual Trend 30% 25% ee et tt tts ttt ttt cts sss eee see 20% ane 15% 10% 5% 0% 2014 2015, 2016 2017 2018 | Fee Income Ratio = = Long-Term Goal Quarterly Trend 30% 25% ee ie leet eileen tice iceeticetien tien icertientien ict tiartiies inti! s<2<5 20% 15% 10% 5% 0% - 3Q18 4qis 1019
Slide 33: Efficiency Ratio
Efficiency Ratio = Annual Trend => 74% 70% 66% 6% f-—- - — - - - E - — - S a = 58% ju — —_-_-— —_--— —_— —_-— —_+ 54% 50% 2014 2015 2016 2017 2018 ™ Efficiency Ratio — — Long-Term Operating Range Quarterly Trend 74% 70% 66% 62% 4[- — a -—-—— a a eee cee am 58% {Le —_—— —_—— —_—— —_—— el 54% 50% 3Q18
Slide 34: In-Market Deposits / Total Bank Funding
In-Market Deposits / Total Bank Funding Annual Trend 100% 90% 2014 2015 2016 2017 [® Transaction Accounts 1 Non-Transaction Accounts [Bank Wholesale Funding = = Target Operating Range Note: n-Market Deposits represents transaction accounts plus non-transaction accounts. Total Bank Funding represents
Slide 35: Annualized Net Charge-Offs / Average Loans
° Annualized Net Charge-Offs / Average Loans = Annual Trend = 2.5% 2.0% 15% 1.0% 0.5% | 0.0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 —— FBIZ ——= U.S. Commercial Banks $18-$3B Quarterly Trend 0.8% 0.6% 0.4% 0.2% 0.0% 0.2% + 3018 4ai8s 1019 2019 3019 — reiz = US. Commercial Banks $18-$3
Slide 36: Return on Average Assets
Return on Average Assets = Annual Trend — 1.20% ape 1.00% ee ae ee 0.80% 0.60% 0.40% 0.20% 0.00% ' 2014 2015 2016 2017 2018 Mm ROAA = = Long-Term Goal Quarterly Trend 1.60% 1.40% 1.20% eee see ee ee —_——<—=<= —_eeee == 1.00% a 0.80% 0.60% 0.40% 0.20% 0.00% . 3Q18 4Q18 1Q19 2Q19 3Q19 M ROAA = = Long-
Slide 37: Return on Average Equity
Return on Average Equity Annual Trend 16.00% 14.00% 12.00% wee we ee eee ee ee ee ee ee ee ee 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 2014 2015 2016 2017 2018 MH ROAE = = Long-Term Goal Quarterly Trend 16.00% 14.00% ==ee=eeees ao —=—sSE=es 12.00% eS 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 3a18 4qis 1ai9 2
Slide 38: Top Line Revenue Growth
Top Line Revenue Growth Annual Trend 40% 30% 20% 10% 0% -10% -20% 2014 2015 2016 2017 2018 == U.S. Commercial Banks $1B-$3B == FBIZ Quarterly Trend 3Q18 4Q18 1Q19 2Q19 3Q19 === U.S. Commercial Banks $1B-$3B == FBIZ Source: S&P Global Market Intelligence. Quarterly Trend represents year-over-year top
Slide 39: Loan and Deposit Composition
Loan and Deposit Composition Total Gross Loans & Leases Note: Period-end balances as of September 30, 2019. cal CRE Noo Re 00 ‘Multi-Family Construction Land Development 1-4 Family Consumer & Other Direct Financing Leases Total Deposits ‘Money Market Accounts ‘NIB Transaction Accounts 18 Transaction
Slide 40: 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 — W
Slide 41: Appendix: Supplemental Data & Non-GAAP Reconciliations
First Business APPENDIX SUPPLEMENTAL DATA & NON- GAAP RECONCILIATIONS BANKING BEYOND EXPECTATIONS
Slide 42: Commercial Banking Products & Services
First Business COMMERCIAL BANKING PRODUCTS & SERVICES BANKING BEYOND EXPECTATIONS
Slide 43: 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 44: 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 45: 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 46: 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 comp
Slide 47: 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 48: Trust / Private Wealth
Trust / Private Wealth Wealth management services for businesses, executives, and high net worth individuals Product Profile e Fiduciary and investment manager for individual and corporate clients, creating, and executing asset allocation strategies tailored to each client’s unique situation ¢ Full
Slide 49: 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 50: Non-GAAP Reconciliations
First Business NON-GAAP RECONCILIATIONS BANKING BEYOND EXPECTATIONS
Slide 51: 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 52: 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 53: 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 54: 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
Slide 55: = | First
= | First Business BANKING BEYOND EXPECTATIONS
First Business Financial Services — Q3 2019 Earnings Presentation on 6ix