First Business Financial Services, Inc. · NASDAQ:FBIZ
First Business Financial Services — Q3 2020 Earnings Presentation
64 slides from First Business Financial Services's earnings presentation, Nov 4, 2020
Slide 1: Investor Presentation Third Quarter 2020
Exhibit 99.1 INVESTOR PRESENTATION THIRD QUARTER 2020 Nasdaq: FBIZ
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 COVID-19 Update............................................................................. 8 Quarterly Update..............................................................................
Slide 4: Company Overview
COMPANY OVERVIEW First Business:
Slide 5: Company Profile
Company Profile FBIZ BANKING1 FBIZ TRUST $2.6 Billion $2.0 Billion IN TOTAL ASSETS IN ASSETS UNDER MANAGEMENT & ADMINISTRATION Headquarters: Madison, WI Mission: Build long-term shareholder value as an entrepreneurial financial services provider to businesses, executives, and high net worth individu
Slide 6: Evolution of Success Aligned with the Financial Needs of Our Niche Client Base
Evolution of Success Aligned with the Financial Needs of Our Niche Client Base 6
Slide 7: Evolution of Success Aligned with the Financial Needs of Our Niche Client Base
Evolution of Success Aligned with the Financial Needs of Our Niche Client Base 7
Slide 8: COVID-19 Update
COVID-19 UPDATE First Business:
Slide 9: Paycheck Protection Program ("PPP") Active Participation
Paycheck Protection Program ("PPP") Active Participation Propelled by SBA Expertise & Proactive Investments in Technology Leveraged a 700+ applications $8.7 MILLION As of 11/2/20, proprietary client processed and in processing fees $117.1 MILLION, or portal to create an expected to be efficient and
Slide 10: Robust Liquidity Position
Robust Liquidity Position Primary & Secondary Sources Provide Ample Liquidity During Uncertain Environment Primary Sources: As of 6/30/20 As of 9/30/20 • Short-Term Investments (Primarily excess cash held 8% 4% 9% 4% at the Federal Reserve) • Collateral Value of 16% Unencumbered Loans (FHLB 21% Adva
Slide 11: Capital Strength
Capital Strength The Company’s Capital Ratios Continue to Exceed the Highest Required Regulatory Benchmark Levels Total Risk-Based Capital Tier 1 Capital Tier 1 Leverage Capital 15% 12% 10% 13% 10% 8% 10% 8% 6% 8% 6% 4% 5% 4% 2% 3% 2% 0% 0% 0% 9/30/19 6/30/20 6/30/20 09/30/20 9/30/20 9/30/19 6/30/20
Slide 12: Credit Quality
Credit Quality Modest Overall Exposure to Industries Most Impacted by COVID-19 and No Retail Consumer Portfolio Exposure to Stressed Industries Loan Modification Trend As of $360 480 ($ in millions) September 30, 2020 $300 400 % Gross Loans and Industries: Balance Leases (2) Retail (1) $ 75.2 4.1 %
Slide 13: Credit Quality: Loan Deferrals by Industry
Credit Quality As of October 20, 2020, 95% of clients whose first deferral concluded during the quarter resumed their scheduled payments The following table and chart represent a breakdown of the deferred loan balances by industry segment, collateral type, and credit quality indicators: As of (Dolla
Slide 14: Credit Quality: Breakdown of Deferrals in Real Estate and Accommodation
Credit Quality Breakdown of Deferrals in the Real Estate and Rental and Leasing Industry and the Accommodation and Food Service Industry The following table is a further breakdown of the deferred loan balances and collateral type for the Real Estate and Rental and Leasing and Accommodation and Food
Slide 15: Quarterly Update
QUARTERLY First UPDATE Business°
Slide 16: Third Quarter 2020 Summary
Third Quarter 2020 Summary REVENUE - Loan Growth and Record Fee Income Lead to Record Top Line Revenue Driven by Commercial Lending, Private Wealth, and SBA Lending EARNINGS - Robust Operating Performance Tempered by 12% Reserve Build BALANCE SHEET - Record Loan Growth and In-Market Deposits OFF BAL
Slide 17: Quarterly Update - Revenue
Quarterly Update - Revenue Record Fee Income Driven by Commercial Lending, Private Wealth, and SBA Lending $8,400 30.00% $7,408 $7,200 $6,319 28.00% $6,000 $5,792 26.00% $4,800 $3,600 24.00% $ (Thousands) $2,400 22.00% $1,200 $0 20.00% Q3 2019 Q2 2020 Q3 2020 Total Non Interest Income % of Top Line
Slide 18: Quarterly Update - Earnings Performance
Quarterly Update - Earnings Performance Tempered by 12% Reserve Build and $3.8 Million Loan Loss Provision $0.70 1.05% 14.00% 0.97% $0.60 $0.59 0.90% 12.00% 10.68% $0.50 $0.50 0.75% 10.00% 0.68% 8.58% $0.40 $0.38 0.60% 0.55% 8.00% 6.70% $0.30 0.45% 6.00% $0.20 0.30% 4.00% $0.10 0.15% 2.00% $0.00 0.0
Slide 19: Quarterly Update - Balance Sheet
Quarterly Update - Balance Sheet Record Loan Growth and In-Market Deposits Primarily Due to Client Receipt of PPP Loan Proceeds $2,000 $350 $1,845 $1,737 $313 $1,750 $1,721 $1,621 $1,667 $300 $1,500 $1,321 $250 $1,250 $213 $218 $200 $1,000 $ (Millions) $150 $750 $ (Millions) $500 $100 $250 $50 $0 Q3
Slide 20: Quarterly Update - Key Operating Trends: Net Interest Margin
Quarterly Update - Key Operating Trends Modest Adjusted Net Interest Margin Compression Amid Low Rate Environment Adjusted Net Interest Margin Drivers of NIM Change NIM, Yields, and Costs 5.53% 3.34% —% 0.07% —% 3.14% (0.02)%(0.13)% 4.35% (0.13)% 3.95% 3.40% 3.34% 3.14% 2.49% 2.09% 1.99% 3.24% 3.32%
Slide 21: Quarterly Update - Key Operating Trends: Earnings Power
Quarterly Update - Key Operating Trends Operating Fundamentals Demonstrate Earnings Power $105.0 Net Operating Income 10YR CAGR = 12% $90.0 $75.0 Operating Expense Pure Net Interest Income ¹ $60.0 Trust Fee Income Other Fee Income Service Charges on Deposits $ (Millions) $45.0 $32.5 Fees in Lieu of
Slide 22: Long-Term Value Drivers
LONG-TERM VALUE First DRIVERS Business:
Slide 23: Long-Term Value Drivers Areas of Focus
Long-Term Value Drivers Areas of Focus Growth - Emphasis on Delivery of Above Average Organic Growth Through Expert Business Banking and Specialty Finance Teams Asset Quality - Proven Financial Performance through Credit Cycles Profitability - Return to Above Average Profitability through Maturation
Slide 24: Growth
Growth Emphasis on Delivery of Above Average Organic Growth Through Expert Business Banking and Specialty Finance Teams Core Deposit Growth (3) Revenue Growth 10.8% 40% 11.9% 40% 30% 30% 20% 20% 10% 4.6% 10% 0% 3.0% 0% -10% -20% -10% '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '11 '12 '13 '14 '15 '16 '1
Slide 25: Asset Quality
Asset Quality Maximize Financial Performance through Credit Cycles with Industry Expertise, Premier Clients, & Consistent Underwriting Net Charge-Offs / Average Loans 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% -0.50% 2007 2008 2009 2010 2011 2012 FBIZ Peer Group (1) Great Recession 25 1. Peer Group defined
Slide 26: Profitability: Commercial Business Lines
Profitability Return to Above Average Profitability Through Maturation of Commercial Business Lines Business Life Cycles Early Stage Adolescent Mature Very High Growth & Operating High Growth & Positive Sustainable Growth & Highly Losses Contribution Profitable Commercial Business Lines Vendor Finan
Slide 27: Profitability: ROAE and Tangible Book Value Growth
Profitability Return to Above Average Profitability Through Maturation of Commercial Business Lines Return on Average Equity Tangible Book Value Growth 20.00% 11.2% TBV 10YR CAGR = 8% 15.00% 9.6% $20.00 10.00% 8.0% $15.00 5.00% 6.4% $10.00 0.00% 4.8% $5.00 -5.00% 3.2% -10.00% $0.00 1.6% '05 '06 '07
Slide 28: Operating Efficiency
Operating Efficiency Leverage Branch-Lite Model and Business-Banking Niche Total Deposits per Branch Total Revenue per FTE $500,000 $400 $350 $400,000 $300 $300,000 $250 $200 $200,000 $150 $( Thousands) $ (Thousands) $100 $100,000 $50 $0 $0 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '11 '12 '13 '14 '15
Slide 29: Operating Efficiency: Proactive Investment in Technology
Operating Efficiency Proactive Investment in Technology First Business IT Strategy - Digital Transformation Solutions are Built on Top of Salesforce, Which is at the Core of our IT Strategy 2018 2019 2020 SBA Lending Portal SBA Lending Portal Align with First Business 5-Year Strategic Plan Quick 5-m
Slide 30: Strategic Plan
STRATEGIC First PLAN Business:
Slide 31: FBIZ Strategic Plan 2019-2023 Objective
FBIZ Strategic Plan 2019-2023 Objective 31
Slide 32: FBIZ Strategic Plan 2019-2023 Strategies
FBIZ Strategic Plan 2019-2023 4 Strategies Designed to Navigate the Company over a 5-Year Time Horizon 32
Slide 33: FBIZ Strategic Plan 2019-2023: Defining Success
FBIZ Strategic Plan 2019-2023 We Define Success as Delivering Above Average Shareholder Return Total Shareholder Return - 1 Year Actual 20% Goal Actual YTD Goal 2019 2020 2023 10% Return on average equity (1) 12.55% 7.49% 13.50% 0% Return on average assets (1) 1.14% 0.62% 1.15% -10% ≥ 10% per Top li
Slide 34: Investment Rationale
INVESTMENT First RATIONALE Business:
Slide 35: Investment Rationale
Investment Rationale TRADING AT DISCOUNT TO PEER GROUP DIVIDEND YIELD HIGHER THAN PEER GROUP COMPETITIVE ADVANTAGE DRIVEN BY NICHE FOCUS, EMPLOYEE ENGAGEMENT, AND CLIENT SATISFACTION DIVERSIFIED MARGIN AND FEE REVENUE SCALABLE FRANCHISE POSITIONED FOR SUSTAINABLE GROWTH 35
Slide 36: Trading at Discount to Peer Group: Price / Tangible Book Value
Trading at Discount to Peer Group Price / Tangible Book Value 36 Note: Peer Group defined as publicly-traded banks with total assets between $1 billion and $4 billion.
Slide 37: Trading at Discount to Peer Group: Price / LTM EPS
Trading at Discount to Peer Group Price / LTM EPS 37 Note: Peer Group defined as publicly-traded banks with total assets between $1 billion and $4 billion.
Slide 38: Dividend Yield Above Peer Group Median
Dividend Yield Above Peer Group Median 38 Note: Peer Group defined as publicly-traded banks with total assets between $1 billion and $4 billion.
Slide 39: Competitive Advantage Driven by Niche Business and Client-Centric Focus
Competitive Advantage Driven by Niche Business and Client-Centric Focus 39
Slide 40: Competitive Advantage: Employee Engagement & Client Satisfaction
Competitive Advantage Employee Engagement & Client Satisfaction The Best Team Wins Engaged Employees = Happy Clients Net Promoter Score 62 Business Banking Satisfaction 97 % Private Wealth Satisfaction 93 % COVID-19 Responsiveness 90 % Company Retirement Satisfaction 97 % 40 Note: Client satisfactio
Slide 41: Diversified Margin & Fee Revenue
Diversified Margin & Fee Revenue Margin & Fee Revenue Diversification Driven by Suite of Commercial Products & Services Average Gross Loan and Lease Mix Fee Revenue Sources 1% 3% 3% 13% 25% 4% 5% 9% 42% 13% 27% 25% 30% Commercial Lending - CRE NOO Commercial Lending - Other ¹ Commercial Lending - C&
Slide 42: Scalable Franchise Positioned for Sustainable Growth
Scalable Franchise Positioned for Sustainable Growth • Organic growth remains the foundation for the future • Scale Private Wealth Management business in current markets outside of Madison • Significant commercial loan growth opportunity augmented by niche specialty finance lending programs • Demons
Slide 43: Appendix: Supplemental Data & Non-GAAP Reconciliations
APPENDIX SUPPLEMENTAL DATA & NON-GAAP RECONCILIATIONS
Slide 44: Financial Performance
FINANCIAL First PERFORMANCE Business:
Slide 45: Net Interest Margin
Net Interest Margin 2Q20 and 3Q20 net Quarterly Trend interest margin Annual Trend temporarily 4.00% impacted by PPP 4.00% loans with 1% rate 3.50% 3.50% 3.00% 3.00% 2.50% 2.50% 2.00% 2.00% 1.50% 1.50% 1.00% 1.00% 0.50% 0.50% 0.00% 0.00% 3Q19 4Q19 1Q20 2Q20 3Q20 2011 2012 2013 2015 2016 2017 2018 20
Slide 46: Fee Income Ratio
Fee Income Ratio Quarterly Trend Annual Trend 30% 30% 28% 28% 25% 25% 23% 23% 20% 20% 18% 18% 15% 15% 13% 13% 10% 10% 3Q19 4Q19 1Q20 2Q20 3Q20 2011 2012 2013 2015 2016 2017 2018 2019 Fee Income Ratio (1) Long-Term Goal Fee Income Ratio (1) Long-Term Goal 46 1. Fee Income Ratio is defined as total no
Slide 47: Efficiency Ratio
Efficiency Ratio Quarterly Trend Annual Trend 80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% 3Q19 4Q19 1Q20 2Q20 3Q20 2011 2012 2013 2015 2016 2017 2018 2019 Efficiency Ratio (1) Long-Term Goal Efficiency Ratio (1) Long-Term Goal 47 1. Efficiency ratio is a non-GAAP measure de
Slide 48: In-Market Deposits / Total Bank Funding
In-Market Deposits / Total Bank Funding (1) Quarterly Trend Annual Trend 100% 100% 90% 90% 80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% 3Q19 4Q19 1Q20 2Q20 3Q20 2011 2012 2013 2015 2016 2017 2018 2019 Transaction Accounts Non-Transaction Accounts Transaction Accounts Non-Tra
Slide 49: Loan & Deposit Composition
Loan & Deposit Composition (1) Total Gross Loans & Leases Total Deposits 36% 27% 35% 26% 1% 11% 2% 8% 2% 25% 2% 5% 13% 7% CRE NOO C&I CRE OO Money Market Accounts IB Transaction Accounts Multi-Family Construction Land Development NIB Transaction Accounts In-Market CDs Consumer & Other 1-4 Family Dir
Slide 50: Commercial Banking Products & Services
COMMERCIAL BANKING PRODUCTS & SERVICES
Slide 51: 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 52: 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 53: 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 54: Accounts Receivable Financing
Accounts 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 pro
Slide 55: 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 56: 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
Slide 57: 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 58: Non-GAAP Reconciliations
NON-GAAP RECONCILIATIONS First Business:
Slide 59: Efficiency Ratio Non-GAAP Reconciliation
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 60: Cost of Funds Non-GAAP Reconciliation
Cost of Funds Non-GAAP Reconciliation ‘‘Cost of Funds’’ is defined as total interest expense on deposits, FHLB advances, and Federal Reserve PPPLF advances, divided by the sum of total average deposits, average FHLB advances, and average Federal Reserve PPPLF advances. We believe that this measure i
Slide 61: Adjusted Net Interest Margin Non-GAAP Reconciliation
Adjusted Net Interest Margin Non-GAAP Reconciliation “Adjusted Net Interest Margin” is a non-GAAP measure representing net interest income excluding the fees in lieu of interest, PPP loan interest income, FRB interest income, FHLB dividend income, and FRB PPPLF interest expense, divided by adjusted
Slide 62: Pure Net Interest Income Non-GAAP Reconciliation
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, non-accrual interest, and loan fee amortization. We believe that this measure
Slide 63: Net Operating Income Non-GAAP Reconciliation
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-t
Slide 64: First Business
First Business’
First Business Financial Services — Q3 2020 Earnings Presentation on 6ix