Smartfinancial, Inc. · NYSE:SMBK
Smartfinancial — Q2 2017 Earnings Presentation
30 slides from Smartfinancial's earnings presentation, Jul 25, 2017
Slide 1: Second Quarter 2017 Earnings Call
Second Quarter 2017 Earnings Call July 26, 2017
Slide 2: Important Information: Forward Looking Statements
Important Information Forward Looking Statements This presentation contains forward-looking statements. SmartFinancial cautions you that a number of important factors could cause actual results to differ materially from those currently anticipated in any forward-looking statement. Such factors inclu
Slide 3: Important Information for Investors and Shareholders
Important Information Important Information for Investors and Shareholders In connection with the proposed merger, SmartFinancial has filed with the Securities and Exchange Commission (“SEC”) a registration statement on Form S-4 containing a joint proxy statement/prospectus of Capstone Bancshares, I
Slide 4: SMBK at-a-glance
SMBK at-a-glance • Core franchise in East Tennessee – SmartBank founded in 2007 • Corporate Headquarters – Knoxville, Tennessee • 14 Branch Offices located in Knoxville, Pigeon Forge/Gatlinburg and Chattanooga/Cleveland regions in TN with FL offices in Pensacola, Destin and Panama City. • SmartBank
Slide 5: SmartFinancial Strategic Focus
SmartFinancial Strategic Focus • Core franchise in East Tennessee. • Cleveland branch acquisition fills gap between Knoxville and Chattanooga. • Geography provides multiple opportunities to fill in between Tennessee and Florida. • Strong capital position and management team provide the means to exec
Slide 6: SmartFinancial Strategic Focus timeline
SmartFinancial Strategic Focus 6 2007 20162012 1/8/2007 SmartBank opened first office in Pigeon Forge, Tennessee 2015 8/31/2015 Merger with Cornerstone Bancshares completed, pushing SMBK past $1.0B asset mark 10/19/2012 FDIC-assisted acquisition of GulfSouth Private Bank completed ($159M assets at c
Slide 7: Second Quarter 2017 Highlights
Second Quarter 2017 Highlights • Net income available to common shareholders of $1.6 million during 2Q17 compared to $0.9 million during 2Q16. • Net operating earnings (Non-GAAP) available to common shareholders of $1.6 increased over 170% year over year. • Gross loan growth of $58 million for the q
Slide 8: Summary Results
Summary Results 0.00% 0.20% 0.40% 0.60% 0.80% ROAA 3.70% 3.75% 3.80% 3.85% 3.90% Net interest income / average assets 0.00% 0.10% 0.20% 0.30% 0.40% 0.50% Noninterest income / average assets 2.80% 3.00% 3.20% 3.40% 3.60% Noninterest expense / average assets 8
Slide 9: Earnings Profile – Second Quarter 2017
Earnings Profile – Second Quarter 2017 • Net income increased 38% year over year. • Net interest income up over 7% year over year primarily due to average loan balances that were up 11%. • Provision up due to loan growth. • Increases non-interest income compared to prior periods primarily due to gai
Slide 10: Net Interest Income
Net Interest Income • Net interest margin, taxable equivalent, increased quarter to quarter due to higher loan balances and higher yields on securities, and reductions in FHLB advances and other borrowings. • Compared to a year ago earning asset yields are up 4bps while cost of interest bearing liab
Slide 11: Noninterest Income
Noninterest Income • 2Q17 Noninterest income was all core, undistorted by gains on securities or gains on the sale of foreclosed assets. • Quarterly recurring core noninterest income of service charges, gains on the sale of loans, and other noninterest income has trended higher over the last four qu
Slide 12: Noninterest Expense
Noninterest Expense • After holding steady around $8.1 million a quarter increased to $8.8 million primarily due to merger expenses. • Efficiency ratio is down over 3 percentage points from 80.1% to 76.8% compared to last year, even including the merger expenses for the quarter. • Operating efficien
Slide 13: Balance Sheet
Balance Sheet • Cash & cash equivalents built up slightly as securities purchases were scaled back due to lower investment rates. • Loans increased $58 million with organic growth contributing about $35 million and the Cleveland acquisition the remainder. • Broad based deposit growth led by money ma
Slide 14: Loan Portfolio
Loan Portfolio • Loan growth of over $90 million year over year, about 12%. • Growth over the last year has been broad based with increases in C&I, CRE, and Consumer RE. • The bank’s Commercial Real Estate 100 & 300 ratios dropped even further. $0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,00
Slide 15: Asset Quality
Asset Quality • Excellent asset quality with nonperforming assets at just 0.31% of total assets. • Nonperforming assets down over 50% year over year. • Purchase accounting discounts are significantly higher than ALLL. 0.00% 0.20% 0.40% 0.60% 0.80% $0 $2,000 $4,000 $6,000 $8,000 2Q16 3Q16 4Q16 1Q17 2
Slide 16: Deposits
Deposits • Well diversified deposit mix with growth of money market, savings, and noninterest demand replacing mostly wholesale time deposits. • After keeping cost of funds steady for three quarters cost of funds starting to creep up driven by isolated money market accounts and floating rate municip
Slide 17: Capstone Summary Transaction Terms
Capstone Summary Transaction Terms 17 Acquiror: SmartFinancial, Inc. Target: Tuscaloosa, AL based Capstone Bancshares, Inc. Transaction Value(1): $84.8 million Consideration Mix: Approximately $69.0 million in stock(1) (2,899,107 SMBK shares issued) and $15.8 million in cash Valuation Multiples(1)(2
Slide 18: Deal Assumptions and Impact
Deal Assumptions and Impact 18 Cost Savings: 25%, with 85% phased-in in 2018 and 100% thereafter Merger Related Expenses: $5.0 million after-tax Significant Purch. Acct. Mark: $9.3 million loan credit mark down $2.3 million loan fair value adjustment Core Deposit Intangible: $4.2 million Earnings Ac
Slide 19: Pro Forma Branch Map
Pro Forma Branch Map 19 SMBK (14) Capstone (8) • Capstone brings the vibrant Tuscaloosa market to complement existing Tennessee and Florida markets. • Capstone’s CEO, Robert Kuhn, will be the Regional President for Alabama and the Florida Panhandle which will enhance SmartBank’s geographic profile.
Slide 20: Tuscaloosa Market Highlights
Tuscaloosa Market Highlights 20 Tuscaloosa Market Overview Companies with Presence in Western Alabama SMBK Chairman Miller Welborn was raised in Tuscaloosa and has strong ties to the area Tuscaloosa, AL is home to the flagship campus of the University of Alabama, one of the largest universities in t
Slide 21: SmartBank Named Top Workplace
21 SmartBank Named Top Workplace
Slide 22: Conclusions
Conclusions • Second quarter net income increased 38% compared to a year ago. • Third and fourth quarter forecast: • Loan growth driven by: Robust pipeline, New production personnel, Over $128 million in unfunded commitments. • Merger expenses estimated at $0.3 million a quarter. • Lower effective t
Slide 23: Non-GAAP Reconciliations
Non-GAAP Reconciliations 2Q16 3Q16 4Q16 1Q17 2Q17 Net interest income -ex purchase acct. adj. Net interest income (GAAP) 9,612$ 9,665$ 9,856$ 9,820$ 10,248$ Taxable equivalent adjustment (463) (34) (177) 58 21 net interest income TEY 9,149 9,631 $9,679 9,878 10,269 purchase accounting adjustments (5
Slide 24: Non-GAAP Reconciliations
Non-GAAP Reconciliations 2Q16 3Q16 4Q16 1Q17 2Q17 Operating Earnings Net income (loss) (GAAP) 1,192$ 1,611$ 1,647$ 1,644$ 1,648$ Purchased loan accounting adjustments (597) (450) (430) (540) (696) Securities (gains) losses (98) (18) — — — Merger and conversion costs 153 — — — 420 Foreclosed assets (
Slide 25: Second Quarter 2017 Supplemental Information
Second Quarter 2017 25 Supplemental Information
Slide 26: Loan & Deposit Composition
Loan & Deposit Composition 2Q17 C&I 12% C&D 12% CRE, owner occupied 24% CRE, non- owner occupied 27% Consumer RE 24% Other 1% Loans Noninteres t demand 19% Interest- bearing demand 16% Money market and savings 33% Time deposits 32% Deposits 26
Slide 27: Loan Composition History
Loan Composition History 2Q17 1Q17 4Q16 3Q16 2Q16 Gross Loans C&I 105,129$ 90,649$ 85,696$ 83,471$ 87,253$ C&D 101,151 115,675 117,748 128,727 115,385 CRE, owner occupied 211,469 197,032 181,840 172,397 177,052 CRE, non-owner occupied 233,707 210,901 233,021 222,592 212,315 Consumer RE 206,667 186,3
Slide 28: Deposit Composition History
Deposit Composition History 2Q17 1Q17 4Q16 3Q16 2Q16 Deposits Noninterest demand 183,324$ 160,673$ 153,483$ 145,509$ 145,864$ Interest-bearing demand 156,150 167,433 162,702 152,216 153,166 Money market and savings 324,014 274,993 274,605 271,259 258,281 Time deposits 318,147 286,600 316,275 291,858
Slide 29: CRE Ratios
CRE Ratios • Declining trend in CRE ratios has been a result of targeted focus by lending teams across Bank’s geography to primarily prospect opportunities within the owner occupied CRE and Commercial and Industrial portfolio segments. • This strategy was implemented to further diversify the bank’s
Slide 30: Management Team
Management Team 30 Billy Carroll President & CEO Miller Welborn Chairman of the Board C. Bryan Johnson Chief Financial Officer Rhett Jordan Chief Credit Officer Gary Petty Chief Risk Officer Greg Davis Chief Lending Officer