First Business Financial Services, Inc. · NASDAQ:FBIZ
First Business Financial Services — Q2 2020 Earnings Presentation
65 slides from First Business Financial Services's earnings presentation, Jul 28, 2020
Slide 1: Investor Presentation Second Quarter 2020
INVESTOR PRESENTATION SECOND QUARTER 2020 Business: First 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..................0.cccccccccccceeecceeeeeeeeeeeeeeeeeseeeeeenteeeeees 4 COVID-19 Update 2.2... cece cece cee eeneeecneeeeteeesneestereesseeeeniees 8 QUAFEHY USCA ciciscccccissescnenarauanennesxeunenncemnnnenmnenverecen 16 Value DIivers oo... 2.0... cecccc ccc cecce
Slide 4: Company Overview
COMPANY OVERVIEW First Business:
Slide 5: Company Profile
Company Profile FBIZ BANKING: FBIZ TRUST $2.5 Billion $1.9 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
Evolution of Success Aligned with the Financial Needs of Our Niche Client Base 1990 ) 1995 ) 1998 ) 2000 ) 2001 ) 2006 ) 2012 ) 2014 ) 2018 Greater Madison Southeast Northeast Kansas City Area Wisconsin Wisconsin Metro = | First Business
Slide 7: Evolution of Success
Evolution of Success Aligned with the Financial Needs of Our Niche Client Base Comarca Lending BUSINESS BANKING SPECIALTY FINANCE PRIVATE WEALTH GROWING OR MANAGING LEADING AN BUILDING AND Private Banking ‘ABUSINESS ESTABLISHED BUSINESS © MANAGING WEALTH 0a TREASURY MANAGEMENT PRVATE BANKING 7 RECEN
Slide 8: COVID-19 Update
COVID-19 UPDATE First Business:
Slide 9: Business Continuity Plan
Business Continuity Plan Continued Focus on Safety & Uninterrupted Client Service Employees — Safety and well-being is our #1 priority * We continue to strictly adhere to COVID-19 health and safety-related requirements and best practices across all of our locations * Portions of our workforce have s
Slide 10: Paycheck Protection Program ("PPP")
Paycheck Protection Program ("PPP") Active Participation Propelled by SBA Expertise & Proactive Investments in Technology Nearly 60 Leveraged a 700+ applications $8.7 MILLION 26,000+ jobs employees, or 20% sie lial tient processed and in processing fees retained (based ! jortal to create an ses of v
Slide 11: Robust Liquidity Position
Robust Liquidity Position Primary & Secondary Sources Provide Ample Liquidity During Uncertain Environment As of 3/31/20 mo mem Deposts Cotas vate of Geonsomberos Potgod Lowe Markt va of TE roncumberse Secures As of 6/30/20 Shortie PPoagoa aane Protection rogram gua Facty Primary Sources: + Short-Te
Slide 12: 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 14% 12% 12% 2% 10% 10% - - 10% 8% 8% 8% 6% 6% 6% 4% 4% 4% 2% 2% 2% 0% 0% 0% 6/30/19 3/31/20 6/30/20 6/30/19 3/31/20 6/30/2
Slide 13: 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 ‘Avok $350 500 ($ in millions) June 30, 2020 $300 % Gross Loans and 400 Industries: Balance Leases $250 Retail $ 70.0 4.0% e i 300 H
Slide 14: Credit Quality
Credit Quality Loan deferrals of six months accounted for 60.2% of the total $323.2 million in deferral requests and the remaining balance were primarily for three months The following table and chart represent a breakdown of the deferred loan balances by industry segment, collateral type, and credi
Slide 15: Credit Quality
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 16: Quarterly Update
QUARTERLY Fi rst UPDATE Business”
Slide 17: Second Quarter 2020 Summary
Second Quarter 2020 Summary ° 9 89 EARNINGS - Robust Operating Performance Tempered by 21% Reserve Build REVENUE - Record Net Interest Income and Strong Fee Income Driven by Private Wealth, Commercial Lending, and SBA Loan Sales BALANCE SHEET - Strong Loan Growth (excluding PPP Loans and Significant
Slide 18: Quarterly Update - Earnings
Quarterly Update - Earnings Performance Tempered by 21% Reserve Build and $5.5 Million Loan Loss Provision $1.00 1.60% 16.00% , 14.09% , 1.40% | 4.30% 14.00% $0.80 $0.75 1.20% 12.00% $0.60 1.00% 10.00% 0.80% 8.00% $0.38 $0.38 : 0.62% = 670% : #040 0.60% 0.55% 6.00% 0.40% 4.00% $0.20 0.20% 2.00% $0.0
Slide 19: Quarterly Update - Revenue
Quarterly Update - Revenue Strong Fee Income Driven by Private Wealth, Commercial Lending, and SBA Loan Sales g ° Ss Ss wn oO ° S 3S $ (Thousands) A fy ° 3S —) $6,414 30.00% 28.00% 26.00% 24.00% 22.00% Q2 2019 Q1 2020 ® Total Non Interest Income === % of Top Line Revenue = = Long Term Target % of To
Slide 20: Quarterly Update - Balance Sheet
Quarterly Update - Balance Sheet Strong Loan Growth (Excluding PPP Loans and Significant Decrease in Line of Credit Utilization) and Record In-Market Deposits Primarily Due to Client Receipt of PPP Loan Proceeds 78.00% $400 76.00% 74.00% $318 72.00% $300 al 70.00% 68.00% pzie 66.00% 200 64.00% y 62.
Slide 21: Quarterly Update - Key Operating Trends
Quarterly Update - Key Operating Trends Adjusted Net Interest Margin Remains Stable Amid Low Rate Environment Net Interest Margin Drivers of NIM Change NIM, Yields, and Costs oak 0.49% 0:10% 3.34% 5.64% 3.52% 3.44% aisays (0.047%0.05) JIN 0.24% Saas 9 — = 4.35% (0.84)% 3.52% 3.44% 3.34% o—_____e—__—
Slide 22: Quarterly Update - Key Operating Trends
Quarterly Update - Key Operating Trends Operating Fundamentals Demonstrate Earnings Power $105.0 $90.0 $ (Millions) = es eee ee 2017 2018 2019 Q1 2020 Q2 2020 Note: Netinteest income isthe sum of "Pure Ne Interest Income” and “Fees in Lew of Inert”. Noniterest income isthe sum of "Trust Fee income",
Slide 23: Long-Term Value Drivers
LONG-TERM VALUE First DRIVERS Business’
Slide 24: Long-Term Value Drivers
Long-Term Value Drivers Areas of Focus 999 9 Growth - Emphasis on Delivery of Above Average Organic Growth Over Acquisition, and Optimization of Commercial Business Line Performance Asset Quality - Proven Financial Performance through Credit Cycles Profitability - Return to Above Average Profitabili
Slide 25: Growth
Growth Emphasis on Delivery of Above Average Organic Growth Over Acquisition Core Deposit Growth (3) 40% 11.9% 30% 20% 10% 0% 10% 4.6% -20% -30% 41:12:13 14 15 16 17 18 '19'20(1) 10-YR CAGR — FBIZ —— Peer Group (2) Revenue Growth 40% 30% 20% 10% 0% -10% -20% 41°12 13: '14 15 16 17 '18 '19'20 (1) — F
Slide 26: Growth
Growth Optimization of Commercial Business Line Performance Business Life Cycles Early Stage Adolescent Very High Growth & Operating High Growth & Positive Sustainable Growth & Highly Losses Contribution Profitable SBA Lending Accounts Receivable Financing Business Banking Vendor Financing Asset-Bas
Slide 27: Asset Quality
Asset Quality Maximize Financial Performance through Credit Cycles with Industry Expertise, Premier Clients, & Consistent Underwriting Net Charge-Offs / Average Loans Stock Performance 1/1/2007 - 12/31/2012 20% 2.50% 2.00% % 15% 1.50% 20% 1.00% -40% (43,3)% 0.50% -60% 0.00% 30% “ee 2007 2008 2009-20
Slide 28: Profitability
Profitability Return to Above Average Profitability through Optimization of Commercial Business Line Performance Return on Average Equity 05 '06 ‘07 ‘08 09 ‘10 11 12 13 "14 15 "16 ‘17 18 1920(1) 20.00% 15.00% 10.00% 5.00% | | | 0.00% tl | 6.00% | ~10.00% m@ FBZ 1 Peer Group (3) Great Recession 1. 20
Slide 29: Operating Efficiency
Operating Efficiency Leverage Branch-Lite Model and Business-Banking Niche Total Deposits per Branch Total Revenue per FTE $400,000 $360 $350,000 $340 3.2 $300,000 320 g Z $300 = $250,000 5 3 3 $280 = $200,000 Ee a @ $260 $150,000 $240 $100,000 $220 $50,000 $200 41°42 13 44 45 16 17 18 '19'20 (1) 41
Slide 30: Operating Efficiency
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 | Solutions are Built on Top of Salesforce, Which is at the Core of our IT Strategy SBA Lending Portal SBA
Slide 31: Strategic Plan
STRATEGIC First PLAN Business:
Slide 32: 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. 32 First Business
Slide 33: FBIZ Strategic Plan 2019-2023 Strategies
FBIZ Strategic Plan 2019-2023 4 Strategies Designed to Navigate the Company over a 5-Year Time Horizon eeeay TALENT EFFICIENCY Identify, attract, develop and retain 2 Increase internal efficiencies, 1 diverse, high-performing team to deliver a differentiated client positively impact the overall expe
Slide 34: FBIZ Strategic Plan 2019-2023
FBIZ Strategic Plan 2019-2023 We Define Success as Delivering Above Average Shareholder Return Actual Goal Actual | “yTD | 2023 2020 Return on average equity (1) 12.55% 6.92% 13.50% Return on average assets (1) 1.14% 0.58% 1.15% Top line revenue growth (1) 9.1% 8.04% |= ep In-market deposits to tota
Slide 35: Investment Rationale
INVESTMENT First RATIONALE Business:
Slide 36: 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 99 9 99 36 First Business’
Slide 37: Trading at Discount to Peer Group
Trading at Discount to Peer Group Price / Tangible Book Value Price / Tangible Book December 2011 - June 2020 x f 2 @ - - SS § SS SS SF HK YS LS LS LF & Ss sf Ss Ff Ss sf sf s Faiz) —Peer Group Median 37 Note: Peer Group defines as publicy-ades banks wit otal assets belween $1 bilion and $4 bllon, B
Slide 38: Trading at Discount to Peer Group
Trading at Discount to Peer Group Price / LTM EPS Price / LTM EPS December 2011 - June 2020 25.00 20.00 16.00 10.00 5.00 x x x 2 2 ~ x 2 Ra © © RY A a ar a Sr J i 2 i 2 i 2 a 2S —FBIZ_—Peer Group Median Note: Peer Group defines as publicy-ades banks wit otal assets belween $1 bilion and $4 bllon, Fi
Slide 39: Dividend Yield Above Peer Group Median
Dividend Yield Above Peer Group Median Dividend Yield December 2011 - June 2020 5.50% 5.00% 450% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% Dec-11 Jun-12 Dec-12 © Jun-13.Dec-13.« Jun-14.Dec-14. Jun-15.Dec-18 = Jun-16 = Dec-16 = Jun-17Dec-17_—Jun-18-«Dec-18 © Jun-19- Dee-19-—Jun-20 —FBIZ —Peer Group M
Slide 40: Competitive Advantage
Competitive Advantage Driven by Niche Business and Client-Centric Focus VALUE-ADDED EVENTS Manufacturing First First Business Invitational for Charity L la see Tech First G Commercial Real Estate Seminars Nonprofit Events Business Succession Seminars Business Seminars INDUSTRY PRACTICE GROUPS , ith
Slide 41: Competitive Advantage
Competitive Advantage Employee Engagement & Client Satisfaction ACTIVE COMMUNITY INVOLVEMENT | Uhebess Inet Wits Engaged Employees = Happy Clients RIGOROUS HIRING PROCESS | a FUN EMPLOYEE OUTINGS | lah PEOPLE AND CULTURE { yoo CLIENT SATISFACTION Net Promoter Score 62 Business Banking Satisfaction 9
Slide 42: Diversified Margin & Fee Revenue
Diversified Margin & Fee Revenue Margin & Fee Revenue Diversification Driven by Suite of Commercial Products & Services Note: Average balance and revenue data or ho 4 2 3 Average Gross Loan and Lease Mix si sd Net Interest Income / Total Revenue = 75% months ended June 20,2020. ‘Commercial Lending -
Slide 43: 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 *« Demon
Slide 44: Appendix
APPENDIX SUPPLEMENTAL DATA & NON-GAAP RECONCILIATIONS First Business:
Slide 45: Financial Performance
FINANCIAL First PERFORMANCE Business:
Slide 46: Net Interest Margin
Net Interest Margin 3.80% 3.70% 3.60% 3.50% 3.40% 3.30% 3.20% Quarterly Trend net interest loans with 1% rate 2019 3Q19 4Q19 1Q20 Net Interest Margin = = Long-Term Goal 2020 3.90% 3.80% 3.70% 3.60% 3.50% 3.40% 3.30% Annual Trend atl 2011 «2012 2013 2015 2016 2017 2018 | Net Interest Margin = = Long-
Slide 47: Fee Income Ratio
Fee Income Ratio Quarterly Trend Annual Trend 30% 30% 25% -= == = == 25% eee e eee eee o 4, ¢ ¢ 20% 20% ae 15% 15% | | | 10% 10% 2Q19 3Q19 4019 1020 2Q20 2011 «2012, 2013, 2015 2016). 2017_ Ss 2018 = 2019 | Fee Income Ratio (1) = = Long-Term Goal | Fee Income Ratio (1) = = Long-Term Goal 1. Fee inco
Slide 48: Efficiency Ratio
Efficiency Ratio 70% 68% 66% 64% 62% 60% 58% 56% Quarterly Trend il 70% 68% 66% 64% 62% 60% 58% Annual Trend vil 2Q19 3Q19 4Q19 1020 | Efficiency Ratio (1) = = Long-Term Goal 2020 56% 2011 1. Efcency ratios @ non-GAAP measure defined as otal operating expente divided by lata operating revenue. See a
Slide 49: In-Market Deposits / Total Bank Funding
In-Market Deposits / Total Bank Funding "? Quarterly Trend 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2019 3Q19 | Transaction Accounts Bank Wholesale Funding 4a19 1020 © Non-Transaction Accounts 2020 100% 90% 80% 70% 60% 50% s 10% 10% 20% 10% 0% Annual Trend 2011 © 2012-2013 |H_Transaction Accounts
Slide 50: Loan & Deposit Composition
Loan & Deposit Composition “ Total Gross Loans & Leases Total Deposits ™@ cRENOO mca M cREOO ME Money Market Accounts Muti-Family IIB Transaction Accounts Construction NB Tiesitacter Bi herd bonnet WH in-Market CDs m Senet one 1H Wholesale deposits MB 14Family Direct Financing Leases 1. Period-end b
Slide 51: Commercial Banking Products & Services
COMMERCIAL . BANKING PRODUCTS i | & SERVICES usiness
Slide 52: 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 53: 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 54: 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 55: 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 56: 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 57: 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 58: 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 59: Non-GAAP Reconciliations
NON-GAAP RECONCILIATIONS First Business:
Slide 60: 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 61: Cost of Funds
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 is
Slide 62: Adjusted Net Interest Margin
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 63: 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, non-accrual interest, and loan fee amortization. We believe that this measure
Slide 64: 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-t
Slide 65: First
First Business’
First Business Financial Services — Q2 2020 Earnings Presentation on 6ix