First Business Financial Services, Inc. · NASDAQ:FBIZ
First Business Financial Services — Q4 2019 Earnings Presentation
52 slides from First Business Financial Services's earnings presentation, Jan 31, 2020
Slide 1: Investor Presentation Fourth Quarter 2019
First Business INVESTOR PRESENTATION FOURTH 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 4 Quarterly Update cccccscsecescsssseressaessnngtecieesvceremncemceetes 9 Investment Rationale ..0..........0..cc ccc cececeeeeeeteeeeteeeeteeeeneeee 15 Strategic PLA o.oo... cccccccccceeeceeeeceesseeeseeeeseeeeeeeesaeeeeneeennees 23 Financial Performance...:....:.
Slide 4: Company Overview
First Business COMPANY OVERVIEW BANKING BEYOND EXPECTATIONS
Slide 5: Company Profile
Company Profile = | FBIZ BANKING: FBIZ TRUST $2.1 Billion $1.9 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
Quarterly Update Continued Investment in People and Infrastructure Drive Improved Profitability $0.80 $0.70 $0.60 $0.50 $0.40 $0.30 $0.20 $0.10 $0.00 $0.67 $0.59 $0.46 a4 2018 Q3 2019 a4 2019 Diluted EPS 1.15% 1.10% 1.05% 1.00% 0.95% 0.90% 0.85% 0.80% 11.93% 1.09% Q4 2018 Q3 2019 Q4 2019 ™ ROAA MB R
Slide 11: Quarterly Update: Fee Income
Quarterly Update Robust and Diversified Fee Income Surpasses Long-Term Goal of 25% of Top Line Revenue $8,000 30.00% 29.00% $7,000 28.00% $6,000 | 27.00% 3 26.00% 5 3 $5,000 + 25.00% E = 24.00% $4,000 23.00% $3,000 22.00% 21.00% $2,000 ! 20.00% Q4 2018 Q3 2019 Q4 2019 Total Non Interest Income === %
Slide 12: Quarterly Update: Loan and Deposit Growth
Quarterly Update Loan Growth Supported by Strong In-Market Deposit Growth Q4 2018 Q3 2019 Q4 2019 1 HM AvgGross Loans & Leases MM Avg n-Market Deposits == In-Market Deposit Ratio 1._In-Market Deposit Ratio is defined as in-market deposits/total bank funding. Average In-Market Deposits represents tra
Slide 13: Quarterly Update: Operating Trends
Quarterly Update Operating Trends Net Interest Income Non-Interest Income $2.3 million in 4039, $374,000 in 3019, and $662,000 in 408, $20 $18 $16 $5.8 na $4.6 12 Q4 2018 Q3 2019 Q4 2019 Q4 2018 Q3 2019 Q4 2019 TE Pure Net Interest income’ —f}_—_Fees in Liew of Interest * Efficiency Ratio Operating
Slide 14: Quarterly Update: Operating Fundamentals
Quarterly Update Operating Fundamentals Demonstrate Earnings Power $30.0 $105.0 $90.0 $75.0 $60.0 $45.0 $32.5 26.6} $28.1 $30.0 i $15.0 $0.0 Qa 2018 03 2019 a4 2019 Dec 2017 YTD — Dec2018YTD Dec 2019 YTD BE operating expense HE Pure netimerest income HE operating Expense Bure Net interest income ME
Slide 15: Investment Rationale
First Business INVESTMENT RATIONALE BANKING BEYOND EXPECTATIONS
Slide 16: 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 16
Slide 17: Total Shareholder Return Outperforms Peer Group
Total Shareholder Return Outperforms Peer’ 2019 Total Shareholder Return 50% 40% 30% 20% 10% 0% -10% -20% —FBIZ =——=Peer Group Median -===S&P 500 Source: S&P Global Market Intelligence. Total shareholder return represents data from 1/2/2019 to 12/31/2019. 1, American National Bankshares Inc. (AMNB),
Slide 18: P/E Multiple at a Discount to Peer Group
P/E Multiple at a Discount to Peer Group’ P/E Trend 14x ax Dec-18 Jan-19. Feb-19. Mar-19 Apr-19 May-19 Jun-19.—Jul-19—Aug-19 Sep-19 Oct-19 Nov-19_—_Dec-19. —FBIZ-US_ —Peer Group Median Source: S&P Global Market intelligence. P/E Trend represents price to next twelve months EPS. A. American National
Slide 19: Dividend Yield Above Peer Group Average
Dividend Yield Above Peer Group Average’ Dividend On January 24, 2020, FBIZ srncuaced «1006 bivease in Re quarterly dividend rate. This 3.50% represents the 8th consecutive annual dividend increase. 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% Dec-18 Jan-19Feb-19 Mar-19 Apr-19_ May-19 Jun-19— J 19 Aug-
Slide 20: 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 21: 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 22: 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 © Scaling Private Wealth Management business in cu
Slide 23: Strategic Plan
First Business STRATEGIC PLAN BANKING BEYOND EXPECTATIONS
Slide 24: 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. 24
Slide 25: FBIZ Strategic Plan 2019-2023 Strategies
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 26: 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 27: 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 28: Financial Performance
First Business FINANCIAL PERFORMANCE BANKING BEYOND EXPECTATIONS
Slide 29: Net Interest Margin
° Net Interest Margin Ea Annual Trend = 4.00% 3.50% ee--- -=26 e==5 eeeee 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 2015 2016 2017 2018 2019 1M Net Interest Margin = = Long-Term Goal Quarterly Trend 4.00% 3.50% a ===. eee eee eee ee 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 4qis 1019 2019 3Q19 4ais
Slide 30: Fee Income Ratio
Fee Income Ratio Annual Trend 30% 25% Slee te etc iced tae en is ae ieetaetiae enti ae ie ett ete ce eal elcid 20% 15% 10% 5% 0% 2015, 2016 2017 2018 2019 [Fee Income Ratio = = Long-Term Goal Quarterly Trend 30% 25% eee eee ee ee ee eee al s<2<5 20% 15% 10% 5% 0% , 4qis 1019 2019 3Q19 419 (Fee Incom
Slide 31: Efficiency Ratio
Efficiency Ratio = Annual Trend => 74% 70% 66% 06 a — — — Sy a = 58% ju — —_-_-— —_--— —_— —_-— —_+ 54% 50% 2015 2016 2017 2018 2019 ™ Efficiency Ratio — — Long-Term Operating Range Quarterly Trend 74% 70% 66% 62% 4[- — a -—-—— a a eee cee am 58% {Le —_—— —_—— —_—— —_—— el 54% 50% 4Q18 1Q19 2Q19 3Q1
Slide 32: In-Market Deposits / Total Bank Funding
In-Market Deposits / Total Bank Funding Annual Trend 100% 90% 2015 2016 2017 2018 [® 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 33: 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% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 —— FBIZ ——= U.S. Commercial Banks $18-$3B Quarterly Trend 0.8% 0.6% 0.4% 0.2% 0.0% 0.2% + - 4qis 1019 2019 3019 4ai9 — reiz = US. Commercial Banks $18-$
Slide 34: Return on Average Assets
Return on Average Assets = Annual Trend — 220% eos tee eee = 1.00% sseeeeee eee ee ee eee ee 0.80% 0.60% 0.40% 0.20% 0.00% ' 2015 2016 2017 2018 2019 Mm ROAA = = Long-Term Goal Quarterly Trend 1.60% 1.40% 1.20% ——— —— ——<—8 eee ee 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% . 4Q18 1Q19 2Q19 3Q19 4qi9 M ROAA
Slide 35: Return on Average Equity
Return on Average Equity Annual Trend 16.00% 14.00% eee eee ee ee ee 12.00% wee eee eee ee eee ee 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 2015 2016 2017 2018 2019 MH ROAE = = Long-Term Goal Quarterly Trend 16.00% 14.00% eee eeee ==== wee eee ee ee ee eee 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 4qis
Slide 36: Top Line Revenue Growth
Top Line Revenue Growth Annual Trend 40% 30% 20% 10% 0% -10% -20% + - 2015 2016 2017 2018 2019 == U.S. Commercial Banks $1B-$3B == FBIZ Quarterly Trend 4Q18 1Q19 2Q19 3Q19 4Q19 === U.S. Commercial Banks $1B-$3B == FBIZ Source: S&P Global Market Intelligence. Quarterly Trend represents year-over-year
Slide 37: Loan and Deposit Composition
Loan and Deposit Composition Total Gross Loans & Leases Note: Period-end balances as of December 31, 2019, CRE Noo cal 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 38: Appendix: Supplemental Data & Non-GAAP Reconciliations
First Business APPENDIX SUPPLEMENTAL DATA & NON- GAAP RECONCILIATIONS BANKING BEYOND EXPECTATIONS
Slide 39: Commercial Banking Products & Services
First Business COMMERCIAL BANKING PRODUCTS & SERVICES BANKING BEYOND EXPECTATIONS
Slide 40: 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 41: 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 42: 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 43: 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 44: 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 45: 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 46: 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 47: Non-GAAP Reconciliations
First Business NON-GAAP RECONCILIATIONS BANKING BEYOND EXPECTATIONS
Slide 48: 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 49: 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 50: 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 51: 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 52: First Business: Banking Beyond Expectations
= | First Business BANKING BEYOND EXPECTATIONS
First Business Financial Services — Q4 2019 Earnings Presentation on 6ix