First Business Financial Services, Inc. · NASDAQ:FBIZ
First Business Financial Services — Q4 2020 Earnings Presentation
60 slides from First Business Financial Services's earnings presentation, Feb 3, 2021
Slide 1: Investor Presentation Fourth Quarter 2020
INVESTOR PRESENTATION FOURTH QUARTER 2020 Nasdaq: FBIZ Exhibit 99.1
Slide 2: 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,” “likely,” or similar expre
Slide 3: Table of Contents
Table of Contents Company Overview..................................................................... 4 COVID-19 Update........................................................................ 8 Quarterly Update........................................................................ 12 Value Driver
Slide 4: Company Overview
COMPANY OVERVIEW
Slide 5: Company Profile
Company Profile • Experienced leadership • Entrepreneurial management style • Insider ownership of 5.3%2 • Business-focused model • Efficient and highly scalable banking model with limited branch network • Client relationship focus with high touch service Headquarters: Madison, WI Mission: Build lon
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
Slide 9: Paycheck Protection Program Active Participation
Paycheck Protection Program ("PPP") Active Participation Propelled by SBA Expertise & Proactive Investments in Technology Leveraged a proprietary client portal to create an efficient and user friendly PPP portal within days of the plan’s announcement CARES Act • 700+ applications processed and $332
Slide 10: Credit Quality: Modest Exposure to Industries Most Impacted by COVID-19
($ in m ill io n s) Loan Modification Trend Balance Outstanding Deferral Requests 3/31/20 4/30/20 6/30/20 9/30/20 12/31/20 $0 $60 $120 $180 $240 $300 $360 0 80 160 240 320 400 480 Credit Quality Modest Overall Exposure to Industries Most Impacted by COVID-19 and No Retail Consumer Portfolio 10 • As
Slide 11: Credit Quality: Active Deferrals Down
Credit Quality Active deferrals down $104.5 million, or 79%, to $27.0 million as of December 31, 2020, compared to active deferrals $131.5 million as of September 30, 2020 11 The following table and chart represent a breakdown of the deferred loan balances by industry segment, collateral type, and c
Slide 12: Quarterly Update
QUARTERLY UPDATE
Slide 13: Fourth Quarter 2020 Summary
EARNINGS - Top line revenue grew to a record $29.3 million, up 12.6% from the third quarter of 2020 and 14.2% from the prior year quarter driven by significant loan growth, net interest margin stability, and diverse non-interest income sources BALANCE SHEET - Gross loans and leases receivable exclud
Slide 14: Quarterly Update - Earnings
1.09% 0.68% 0.93%11.93% 8.58% 11.92% ROAA (1) ROAE (1) Q4 2019 Q3 2020 Q4 2020 0.00% 0.20% 0.40% 0.60% 0.80% 1.00% 1.20% 0.00% 2.50% 5.00% 7.50% 10.00% 12.50% 15.00% 14 Quarterly Update - Earnings Record Top Line Revenue Drives Strong Earnings 1. Calculations are annualized. $0.67 $0.50 $0.71 $25,66
Slide 15: Quarterly Update - Balance Sheet
$ (M ill io n s) $1,715 $1,845 $1,921 $1,379 $1,667 $1,683 Period-End Loans & Leases (1) Period-End In-Market Deposits (2) Q4 2019 Q3 2020 Q4 2020 $1,000 $1,250 $1,500 $1,750 $2,000 $2,250 Quarterly Update - Balance Sheet Significant Loan Growth and Record In-Market Deposits 151. Q4 2020 and Q3 2020
Slide 16: Quarterly Update - Asset Quality
Quarterly Update - Asset Quality Asset Quality Improves with a 27% Decrease in Non-Performing Assets 16 1. Q4 2020 and Q3 2020 "Total Assets" exclude net PPP loans. Net PPP loans outstanding as of December 31, 2020 and September 30, 2020, were and $225.3 million and $325.4 million, respectively. Q4
Slide 17: Key Operating Trends: Stable Adjusted Net Interest Margin
Quarterly Update - Key Operating Trends Stable Adjusted Net Interest Margin Amid Low Rate Environment Adjusted Net Interest Margin 3.73% 3.14% 3.69% 3.41% 3.24% 3.25% 0.32% (0.10)% 0.44% Adjusted net interest margin (1) Recurring, volatile components (2) Q4 2019 Q3 2020 Q4 2020 17 1. "Adjusted Net I
Slide 18: Key Operating Trends: Operating Fundamentals Demonstrate Earnings Power
$ (M ill io n s) $7.9 $7.8 $9.0 $7.6 Q2 2019 Q3 2019 Q4 2019 Q1 2020 $0.0 $5.0 $10.0 $15.0 $20.0 $25.0 $30.0 $ (M ill io n s) $32.5 $39.1 FYE 2019 FYE 2020 $0.0 $15.0 $30.0 $45.0 $60.0 $75.0 $90.0 $105.0 Quarterly Update - Key Operating Trends Operating Fundamentals Demonstrate Earnings Power 18 Not
Slide 19: Long-Term Value Drivers
LONG-TERM VALUE DRIVERS
Slide 20: 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 21: Growth: Above Average Organic Growth
Revenue Growth FBIZ Peer Group (2) '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 (1) -10% 0% 10% 20% 30% 40% Loan Growth FBIZ Peer Group (2) '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 (1) -10% 0% 10% 20% 30% 40% Growth Emphasis on Delivery of Above Average Organic Growth Through Expert Business Banking and S
Slide 22: Asset Quality Through Credit Cycles
Asset Quality Maximize Financial Performance through Credit Cycles with Industry Expertise, Premier Clients, & Consistent Underwriting 22 1. Peer Group defined as U.S. Commercial Banks with total assets between $1 billion and $3 billion. Net Charge-Offs / Average Loans FBIZ Peer Group (1) Great Rece
Slide 23: Profitability: Maturation of Commercial Business Lines
Profitability Return to Above Average Profitability Through Maturation of Commercial Business Lines 1. AUA represents "Assets Under Advisement" 2. AUM&A represents "Assets Under Management and Administration" 3. Represents growth during 2020. Floorplan financing did not have loan balances at 12/31/2
Slide 24: Profitability: Return on Equity and Tangible Book Value Growth
Profitability Return to Above Average Profitability Through Maturation of Commercial Business Lines 1. 2020 represents annualized data for the nine months ended September 30, 2020. 2. Peer Group defined as U.S. Commercial Banks with total assets between $1 billion and $3 billion. Return on Average E
Slide 25: Accounts Receivable Financing
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 competitive rates to clients starting up, seeking growth, and needing cash flow support, or who are experienc
Slide 26: SBA Lending
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 opportunities by meeting the needs of clients whose borrowing needs cannot be met with
Slide 27: Vendor Finance
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 assets, construction, and transportation equipment, and a wide variety of other commercial equipme
Slide 28: Commercial Lending
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 $75.0 million M ill io n s Portfolio Analysis CRE NOO Other C&I CRE OO Average Yield 4Q19 1Q20 2Q20 3Q20 4Q20 $0
Slide 29: Treasury Management
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, including lockbox, accounts receivable collection services, electronic payment solutions, fraud protection, inf
Slide 30: Asset-Based 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 refinancing, debt restructuring, corporate turnaround strategies and debtor-in-possession financing in the c
Slide 31: Trust / Private Wealth
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 fiduciary powers and offers trust, estate, financial planning, and investment services, acting in a trustee o
Slide 32: Operating Efficiency: Branch-Lite Model and Business-Banking Niche
Operating Efficiency Leverage Branch-Lite Model and Business-Banking Niche $ (T h o u sa n d s) Total Revenue per FTE FBIZ Peer Group (2) '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 (1) $0 $50 $100 $150 $200 $250 $300 $350 $400 1. 2020 represents annualized data as of September 30, 2020. 2. Peer Group d
Slide 33: Operating Efficiency: Proactive Investment in Technology
Operating Efficiency Proactive Investment in Technology 33 The COVID-19 Pandemic has proven the prior investments made in our IT Strategy allowed us to be extremely agile and responsive to our Clients. It has also reinforced the fact our Business & IT Strategy is aligned with the future and sometime
Slide 34: Strategic Plan
STRATEGIC PLAN
Slide 35: FBIZ Strategic Plan 2019-2023 Objective
FBIZ Strategic Plan 2019-2023 Objective 35
Slide 36: FBIZ Strategic Plan 2019-2023 Strategies
FBIZ Strategic Plan 2019-2023 4 Strategies Designed to Navigate the Company over a 5-Year Time Horizon 36
Slide 37: Strategic Plan: Defining Success as Above Average Shareholder Return
FBIZ Strategic Plan 2019-2023 We Define Success as Delivering Above Average Shareholder Return Total Shareholder Return - 1 Year FBIZ Peer Group (2) -60% -50% -40% -30% -20% -10% 0% 10% 37 Goal Actual 2019 Actual 2020 Goal 2023 Return on average equity 12.55% 8.64% 13.50% Return on average assets 1.
Slide 38: Investment Rationale
INVESTMENT RATIONALE
Slide 39: Investment Rationale
TRADING AT DISCOUNT TO PEER GROUP DIVIDEND YIELD HIGHER THAN PEER GROUP - ON JANUARY 29TH, ANNOUNCED A 9% INCREASE IN QUARTERLY DIVIDEND RATE REPRESENTING THE 9TH CONSECUTIVE ANNUAL DIVIDEND INCREASE ON JANUARY 28TH, ADOPTED A NEW SHARE REPURCHASE PROGRAM THAT AUTHORIZES THE REPURCHASE OF $5 MILLION
Slide 40: Trading at Discount to Peer Group: Price / Tangible Book Value
Trading at Discount to Peer Group Price / Tangible Book Value Note: Peer Group defined as publicly-traded banks with total assets between $1 billion and $4 billion. 40
Slide 41: Trading at Discount to Peer Group: Price / LTM EPS
Trading at Discount to Peer Group Price / LTM EPS Note: Peer Group defined as publicly-traded banks with total assets between $1 billion and $4 billion. 41
Slide 42: Dividend Yield Above Peer Group Median
Note: Peer Group defined as publicly-traded banks with total assets between $1 billion and $4 billion. Dividend Yield Above Peer Group Median 42 On January 29th, 2021, FBIZ announced a 9% increase in its quarterly dividend rate. This represents the 9th consecutive annual dividend increase.
Slide 43: Competitive Advantage Driven by Niche Business and Client-Centric Focus
Competitive Advantage Driven by Niche Business and Client-Centric Focus 43
Slide 44: Competitive Advantage: Employee Engagement & Client Satisfaction
Competitive Advantage Employee Engagement & Client Satisfaction The Best Team Wins Engaged Employees = Happy Clients 44 Net Promoter Score 62 Business Banking Satisfaction 97 % Private Wealth Satisfaction 93 % Company Retirement Plan Satisfaction 97 % COVID-19 Client Responsiveness 90 % Note: Client
Slide 45: Diversified Margin & Fee Revenue
Average Gross Loan and Lease Mix 26% 27% 25% 9% 5% 4% 3% 1% Commercial Lending - CRE NOO Commercial Lending - Other ¹ Commercial Lending - C&I Commercial Lending - CRE OO Asset-Based Lending Equipment Financing SBA Lending Accounts Receivable Financing Fee Revenue Sources 28% 33% 14% 21% 3% 1% Comme
Slide 46: 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 •Demonstrated ability to grow in-market deposits commensurate
Slide 47: Appendix: Supplemental Data & Non-GAAP Reconciliations
APPENDIX SUPPLEMENTAL DATA & NON-GAAP RECONCILIATIONS
Slide 48: Financial Performance
FINANCIAL PERFORMANCE
Slide 49: Net Interest Margin
Annual Trend Net Interest Margin Long-Term Goal 2012 2013 2015 2016 2017 2018 2019 2020 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% Quarterly Trend Net Interest Margin Long-Term Goal 4Q19 1Q20 2Q20 3Q20 4Q20 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% Net Interest Margin 49
Slide 50: Fee Income Ratio
Fee Income Ratio Annual Trend Fee Income Ratio (1) Long-Term Goal 2012 2013 2015 2016 2017 2018 2019 2020 10% 13% 15% 18% 20% 23% 25% 28% 30% Quarterly Trend Fee Income Ratio (1) Long-Term Goal 4Q19 1Q20 2Q20 3Q20 4Q20 10% 13% 15% 18% 20% 23% 25% 28% 30% 50 1. Fee Income Ratio is defined as total no
Slide 51: Efficiency Ratio
Annual Trend Efficiency Ratio (1) Long-Term Goal 2012 2013 2015 2016 2017 2018 2019 2020 0% 10% 20% 30% 40% 50% 60% 70% 80% Quarterly Trend Efficiency Ratio (1) Long-Term Goal 4Q19 1Q20 2Q20 3Q20 4Q20 0% 10% 20% 30% 40% 50% 60% 70% 80% Efficiency Ratio 51 1. Efficiency ratio is a non-GAAP measure de
Slide 52: In-Market Deposits / Total Bank Funding
Annual Trend Transaction Accounts Non-Transaction Accounts Bank Wholesale Funding 2012 2013 2015 2016 2017 2018 2019 2020 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Quarterly Trend Transaction Accounts Non-Transaction Accounts Bank Wholesale Funding 4Q19 1Q20 2Q20 3Q20 4Q20 0% 10% 20% 30% 40% 50% 6
Slide 53: Loan & Deposit Composition
Total Gross Loans & Leases 26% 34% 12% 15%7% 2% 2% 2% 1% CRE NOO C&I CRE OO Multi-Family Construction Land Development Consumer & Other 1-4 Family Direct Financing Leases Total Deposits 35% 27% 25% 4% 9% Money Market Accounts IB Transaction Accounts NIB Transaction Accounts In-Market CDs Wholesale d
Slide 54: Non-GAAP Reconciliations
NON-GAAP RECONCILIATIONS
Slide 55: Efficiency Ratio 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 discrete items, if any, divided by operat
Slide 56: Cost of Funds 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 is important to many investors in the m
Slide 57: Adjusted Net Interest Margin 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 average interest-earning assets. Fees in lieu of inte
Slide 58: Pure Net Interest Income 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 is important to many investors in the marketplace
Slide 59: Net Operating Income 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-time and other discrete items. In compliance w
Slide 60: First Business Bank
First Business Bank.
First Business Financial Services — Q4 2020 Earnings Presentation on 6ix