First Business Financial Services, Inc. · NASDAQ:FBIZ
First Business Financial Services — Q1 2018 Earnings Presentation
51 slides from First Business Financial Services's earnings presentation, May 1, 2018
Slide 1: Investor Presentation First Quarter 2018
INVESTOR PRESENTATION FIRST 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 Strategic Plan Financial Performance Appendix
Slide 4: Company Overview
COMPANY OVERVIEW
Slide 5: Company Profile
Company Profile a —o 1. Consists of all Fi FBIZ BANKING: FBIZ TRUST $1. 9 Billion $1. 6 Billion IN TOTAL ASSETS ASSETS UNDER MANAGEMENT & AGRaniSEATCn Headquarters: Madison, WI Mission: Build long-term shareholder value as an entrepreneurial financial services provider to businesses, executives and
Slide 6: Aligned with the Financial Needs of Our Niche Client Base
Aligned with the Financial Needs of Our Niche Client Base Asset-based Company Retirement Lending Plan Services Business Banking if Equipment if Private Wealth Services Finance Services J I J 1990 ) 1995 )} 1998 ) 2000 >) 2001 l . Madison Milwaukee . SBA Factoring Lending I I 2012 ) 2014 I Kenosha &
Slide 7: Evolution of Success
Evolution of Success Aligned with the Financial Needs of Our Niche Client Base BUSINESS BANKING SPECIALTY FINANCE EARLY STAGE & ‘TRANSITIONING BUSINESSES ESTABLISHED BUSINESSES PERSONAL FINANCING PRIVATE BANKING FINANCIAL PLANNING INVESTMENT MANAGEMENT/ ‘ACCUMULATION DISTRI ‘TRUST & ESTATE IBUTION A
Slide 8: Geographic Footprint
Geographic Footprint Seattle, WA Appleton, W1 Milwaukee, Kenosha, WI a Hockessin, DE Charlotte, NC © Banking Office © Asset-Based Lending Business Development Office © Factoring Business Ds
Slide 9: Leadership Team
Leadership Team Experienced team trained at large, complex institutions Corey A. Chambas PRESIDENT AND CEO Edward G. Sloane Jr. CHIEF FINANCIAL OFFICER ] Jodi A. Chandler Mark J. Meloy CHIEF HUMAN CEO OF FIRST RESOURCES OFFICER BUSINESS BANK David R. Seiler CHIEF OPERATING FFICER Joan A. Burke PRESI
Slide 10: Quarterly Update
QUARTERLY UPDATE
Slide 11: Non-Performing Assets Declined by 22% Compared to the Linked Quarter
NON-PERFORMING ASSETS DECLINED BY 22% COMPARED TO THE LINKED QUARTER, DECREASING FOR THE 3RD CONSECUTIVE QUARTER LOANS INCREASED 17% ANNUALIZED DURING Q1 2018 TO A RECORD $1.6 BILLION TRUST & INVESTMENT SERVICES REPORTS RECORD ASSETS AND QUARTERLY FEE INCOME FOR THE 9TH CONSECUTIVE QUARTER NET CHARG
Slide 12: Operating Efficiency
Operating Efficiency Diversified Revenue Streams Balance Sheet Growth Asset Quality Profitability 1Q% PYQ % $ in millions (except per share amounts)|_Q12017___Q42017_| Qi2018 | _Change Change Top line revenue “ __$18.951 $18.883 Total operating expenses Efficiency ratio Net interest income Gain on s
Slide 13: Earnings Catalysts
EARNINGS CATALYSTS
Slide 14: Earnings Catalysts
Earnings Catalysts A ORGANIC LOAN AND LEASE GROWTH A ASSET QUALITY IMPROVEMENT A] SBA LENDING GROWTH AND PROFITABILITY A] SCALE HIGH PERFORMING WEALTH MANAGEMENT BUSINESS
Slide 15: Earnings Catalysts: Organic Loan and Lease Growth
Millions Earnings Catalysts Differentiated approach to business banking and investment in talent drives current success and long-term organic loan and lease growth expectations $1,580 $1,560 $1,540 $1,520 $1,500 $1,480 $1,460 $1,440 Period End Loans and Leases Commercial Lending BDO Growth YE 2016 1
Slide 16: Earnings Catalysts: Asset Quality
Earnings Catalysts Asset quality continues to strengthen, reflecting relentless commitment to credit culture Asset Quality Trends $50 3.0% $a0 2.5% 2.0% 1.5% 1.0% $10 0.5% $0 0.0% 1Q17 2Q17 3Q17 4Q17 1Q18 Non-Performing Loans Other Real Estate Owned == NPA/Total Assets Aggregate Through the Cycle Ne
Slide 17: Earnings Catalysts: SBA Lending
Earnings Catalysts SBA lending primed for profitable growth following significant investments in platform and now producers SBA Lending Core Competencies SBA Lending BDO Growth CREDIT F B ist Business OPERATIONS COMPLIANCE YE 2016 1Q17 2Q17 3Q17 4Q17 1Q18 Apr-18 ™@ ExistingBDOs MM NewBDOs Experience
Slide 18: Earnings Catalysts: Wealth Management
Earnings Catalysts Continue to expand high performing wealth management business throughout FBIZ footprint 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 fid
Slide 19: Investment Rationale
INVESTMENT RATIONALE
Slide 20: Investment Rationale Summary
A P/E MULTIPLE AT A DISCOUNT TO PEER GROUP DIVIDEND YIELD SIGNIFICANTLY HIGHER THAN PEER GROUP AVERAGE A] COMPETITIVE ADVANTAGE DRIVEN BY NICHE FOCUS A] DIVERSIFIED MARGIN AND FEE REVENUE SCALABLE FRANCHISE POSITIONED FOR SUSTAINABLE GROWTH
Slide 21: P/E Multiple at a Discount to Peer Group
Investment Rationale P/E multiple at a discount to peer group (1) P/E Trend (March 31, 2017 - March 31, 2018) 10x Mar-17— Apr-17 May-17— Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 — Feb-18 Mar-18 —FBIZ-US ——Peer Group Average 1 (coe2), Ine. (OLBK), CR Holdings, Inc. (QCRH), jnia, Inc. (
Slide 22: Dividend Yield Above Peer Group Average
Investment Rationale Dividend yield above peer group average a) Dividend Yield Trend (March 31, 2017 - March 31, 2018) 2.50% 2.00% 1.50% 0.50% 0.00% Mar-17 Apr-17_—— May-17_— Jun-17 Jul-17 Aug-17— Sep-17 Oct-17. Nov-17_ Dec-17_ Jan-18_ -Feb-18 = Mar-18 ——FBIZ-US ——Peer Group Average 1 (cows Ine. (OL
Slide 23: Competitive Advantage Driven by Niche Focus
Investment Rationale Competitive advantage driven by niche business and client-centric focus CLIENT & COMMUNITY EVENTS 4 —— FIRST BUSINESS PRESENTS ——— E ee) = : nterprising = plirst MANUFACTURING FIRST NONPROFTS -—— Business EXPO & CONFERENCE ——— Brought to you by SEMINAR SERIES FIRST BUSINESS INDU
Slide 24: Margin and Fee Revenue Diversification
Investment Rationale 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 Lending - C&d Commercial Lending - CREOO Asset-Based Lending SBA Lending Equipment Fina
Slide 25: Scalable Franchise Positioned for Sustainable Growth
Investment Rationale Scalable franchise positioned for sustainable growth e Organic growth remains the foundation for the future e Rapidly improving credit profile - Total non-performing assets were $21.5 million at March 31, 2018, decreasing by 45% compared to $39.0 million at March 31, 2017 SBA cl
Slide 26: Strategic Plan Indicators of Success
STRATEGIC PLAN INDICATORS OF SUCCESS
Slide 27: Strategic Plan: Indicators of Success
Strategic Plan Indicators of Success Client-centric plan that we believe Key Performance Indicator will drive: Long-Term Target Net Interest Margin 2 3.50% eA more diversified income stream Fee Income Ratio > 25% eA higher net interest margin Efficiency Ratio Peers eA higher ROA and ROE In-Market De
Slide 28: Financial Performance
FINANCIAL PERFORMANCE
Slide 29: Net Interest Margin
Net Interest Margin Annual Trend 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 lM Net Interest Margin = = Long-Term Goal Primarily reflects Quarterly Trend payoffs during 4016. 1Q15 2Q15 3Q15 4Qis 1Q16 2Q16 3Q16 4Q16 1017 2Q17 3Q17 4Q17 1018 Net Interest Margin == L:
Slide 30: Fee Income Ratio
Fee Income Ratio Annual Trend 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Fee Income Ratio = = Long-Term Goal Quarterly Trend Q4 2017 non-interest Slowed SBA loan Fi includes $409 production while making investments in the platform. 1015 2Q15 3Q15 4Qis 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3
Slide 31: Efficiency Ratio
Efficiency Ratio I I y I 2017 efficiency impacted by Annual Trend 3Q16 decision ue slow aS production while making 74% investments in the platform. 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Efficiency Ratio — — Long-Term Operating Range Quarterly Trend Primarily reflects elevated f
Slide 32: In-Market Deposits / Total Bank Funding
In-Market Deposits / Total Bank Funding 100% Annual Trend 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 100% Quarterly Trend 1Q15 2Q15 3015 4015 1016 2Q16 3Q16 4016 1017 2017 3Q17 4Q17 1018 as a percentage of total bank funding.
Slide 33: Annualized Net Charge-Offs / Average Loans
Annualized Net Charge-Offs / Average Loans Annual Trend 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 m= FBIZ == U.S. Commercial Bank $1B-$3B Quarterly Trend 1.2% based C&l loan. 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1017 2Q17 3Q17 4Q17 1018 w= FBIZ === U.S. Commercial Banks $1B- as
Slide 34: Return on Average Assets
Return on Average Assets Annual Trend 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 lm ROAA = = Long-Term Goal Quarterly Trend luction. 1Q15 2Q15 3Q15 4Qis 1Q16 2Q16 3Q16 4Q16 1017 2Q17 3Q17 4Q17 1Q18 Mm ROAA = = Long-Term Goal
Slide 35: Return on Average Equity
Return on Average Equity Annual Trend 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 M ROAE = = Long-Term Goal Recent volatility primarily reflects impact of proreusy disclosed credit issues an temporary slowdown in Bn Quarterly Trend roalicti 12% ——<—= ee en erry 1015 2Q15 3Q15 4Qis 1Q
Slide 36: Top Line Revenue Growth
Top Line Revenue Growth Acquisition mpleted November 2014. Annual Trend 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 === U.S. Commercial Banks $1B-$3B === FBIZ Quarterly Trend Temporarily slowed SBA loan production while making investments in the platform. ———— 1Q15 2Q15 3Q15 4Qis 1Q16 201
Slide 37: Loan and Deposit Composition
Loan and Deposit Composition Total Gross Loans & Leases Total Deposits CRE Noo ca CREO. Multi-Family a Construction . Land Development a 1-4 Family Direct Finance Leases Consumer & Other Money Market ‘Wholesale Deposits NIB Transaction 1B Transaction In-Market COs
Slide 38: Efficient Funding Strategy
Efficient Funding Strategy Mitigates Interest Rate Risk Strategically shifting from brokered CDs to FHLB Bank Funding Sources advances as the all-in cost for FHLB advances, 100% including the FDIC insurance premium associated 90% | with brokered CDs, is currently less than the all-in cost for broker
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 e Target small- to medium-sized companies in our Wisconsin, Kansas and Missouri markets © Geographic footprint includes Madison, Milwaukee and Northeast Wisconsin, and th
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 © Geographic footprint includes Madison, Milwaukee and Northeast Wisconsin, and t
Slide 43: Asset-Based Lending
Asset-Based Lending High-yielding, counter-cyclical product complements conventional commercial lending Product Profile ° Target medi ized ¢ Primarily provide revolving lines of credit and term loans for leveraged buyouts, capital expenditures, working capital, bank debt refinancing, debt restructur
Slide 44: Factoring
Factoring High-yielding, counter-cyclical product complements conventional commercial lending Product Profile e Target small- to medi ized ¢ Primarily provide funding to clients by purchasing accounts receivable on a full recourse basis © Positioned to provide competitive rates to clients starting u
Slide 45: Equipment Financing
Equipment Financing Aligned with the equipment loan and lease needs of our niche client base Product Profile e Includes broad range of equipment finance products to address the financing needs of commercial clients in a variety of industries e Focus includes manufacturing equipment, industrial asset
Slide 46: 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 fi
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 opportuni
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: Non-GAAP Reconciliation
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 the trends in
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