Smartfinancial, Inc. · NYSE:SMBK
Smartfinancial — KBW's Community Bank Investor Conference 2018
34 slides from Smartfinancial's conference presentation, Jul 31, 2018
Slide 1: KBW's Community Bank Investor Conference
KBW’s Community Bank Investor Conference July 31, 2018
Slide 2: Legal Disclaimer
Legal Disclaimer Forward-Looking Statements Certain of the statements made in this presentation may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-look
Slide 3: Important Information for Shareholders
Important Information Important Information for Shareholders This presentation shall not constitute an offer to sell, the solicitation of an offer to sell, or the solicitation of an offer to buy any securities or the solicitation of any vote or approval, nor shall there be any sale of securities in
Slide 4: The SmartFinancial Story
The SmartFinancial Story SmartBank was founded in 2007 as a de novo bank in East Tennessee and has grown to an approximate $2.2 billion-asset franchise through prudent organic growth and a thoughtful series of mergers (pro forma for pending transaction) The core franchise in East Tennessee has been
Slide 5: Culture
Culture We are building a culture where Associates thrive and are empowered to be leaders. The core values that we have established as a company help us operate in unison and have become a critical part of our culture. Our Associates are key to SmartBank’s success. Core Values Delivering Exhibiting
Slide 6: SmartFinancial, Inc. Management
SmartFinancial, Inc. Management Over 26 years in banking Over 15 years in banking Over 23 years in banking and financial services Led company from start- Responsible for driving key strategic initiatives Responsible for driving up in 2007 to over $2.0 and oversees the Board of billion today Director
Slide 7: Our Business Strategy
Our Business Strategy Create a valuable southeastern banking franchise through organic growth in strong markets, coupled with an acquisition model positioning our company as a partner of choice for banks in our region Continually improve earnings and efficiency metrics as we build out our model with
Slide 8: An Emerging Southeast Acquirer
An Emerging Southeast Acquirer SmartFinancial is transforming into an experienced and preferred Southeast acquirer, having completed five transactions that added low-cost core deposits in attractive markets across three states Nearly three-fourths of the total franchise’s assets and core deposits, i
Slide 9: Disciplined Acquisition Strategy
Disciplined Acquisition Strategy SmartFinancial has adhered to a disciplined set of merger criteria including: No more than 3 years of initial TBV-per-share dilution Meaningful EPS accretion in the first full year of operations Conservative loan marks Franchise additive SmartFinancial is committed t
Slide 10: Attractive Returns For Investors
Attractive Returns For Investors SmartFinancial began trading on September 1, 2015 following the reverse MOE with Cornerstone and has outperformed the broader market since that time SMBK price change through July 26, 2018 = 62.0% S&P 500 Index price change over the same period = 48.3% Four analysts
Slide 11: Valuation Metrics
Valuation Metrics The mean EPS Estimate for analysts that cover our stock projects that SmartFinancial will achieve a 1%+ ROAA run rate in 2018 The table below shows our trading multiples as of the most recent close, as well as the implied multiples based on our mean Price Target 06/30/18 TBVPS '18
Slide 12: Second Quarter 2018 Highlights
Second Quarter 2018 Highlights Net Income of $3.9 million for the quarter, up 139% from a year earlier ROAA of 0.81% for the quarter and Net Operating ROAA (Non-GAAP) of 1.00% Net Interest Margin (fully taxable equivalent “FTE”) of 4.57%, up 42 basis points from a year earlier Nonperforming Assets w
Slide 13: Summary Results
Summary Results ROAA Net Operating ROAA (Non-GAAP) Net Interest Income / Average Assets 1.00% 4.10% 4.00% 0.75% 3.90% 0.50% 3.80% 0.25% 3.70% 0.00% 3.60% Noninterest Income / Average Assets Noninterest Expense / Average Assets 0.50% 3.40 % 0.40% 3.30 % 0.30% 3.20 % 0.20% 0.10% 3.10 % 0.00% 3.00 % 13
Slide 14: Earnings Profile – Second Quarter 2018
Earnings Profile – Second Quarter 2018 EPS increased 60% year over 2Q18 1Q18 2Q17 year (“YoY”) Total Interest Income $22,993 $19,378 $11,517 Earnings Before Income Total Interest Expense 3,455 2,567 1,268 Taxes increased 120% YoY Net Interest Income 19,538 16,811 10,249 Provision for Loan Losses 617
Slide 15: Net Interest Income
Net Interest Income Net Interest Margin (FTE) increased quarter to quarter primarily due to increases on the yields of both core loans and securities, and higher purchase accounting adjustments on acquired loans Compared to a year ago, Earning Asset Yields are up 72 basis points; the Average Cost of
Slide 16: Noninterest Income
Noninterest Income 2Q18 Noninterest Income increased primarily due to higher other noninterest income Quarterly Noninterest Income has trended higher over the last five quarters from approximately $1.2 million in 2Q17 to $1.6 million in 2Q18 Noninterest Income $2,000,000 $1,500,000 (Loss) Gain on Se
Slide 17: Noninterest Expense
Noninterest Expense Efficiency Ratio decreased to 72.3%, the lowest of any quarter since the Cornerstone merger in 2015. Operating Efficiency Ratio (Non-GAAP) was 64.8%; Salary increases are primarily due to the addition of associates from the Tennessee Bancshares acquisition during the quarter Data
Slide 18: Balance Sheet
Balance Sheet Assets increased primarily due to the 2Q18 1Q18 2Q17 Tennessee Bancshares acquisition Cash & Cash Equivalents$ 170,235 $ 96,710 $ 82,835 Securities Available for Sale 156,577 156,210 132,762 Other Investments 8,273 7,808 6,080 Cash & Cash Equivalents elevated due to Total Loans 1,575,4
Slide 19: Deposit Composition 2Q18
Deposit Composition 2Q18 19
Slide 20: Deposit Composition Over Time
Deposit Composition Over Time Well diversified deposit mix growth of money market, savings, and noninterest demand replacing mostly wholesale time deposits Cost of funds increased just 27 bps while Fed Funds has increased 75 bps over the last year $1,800,000 2.00% $1,500,000 1.50% $1,200,000 Time De
Slide 21: Loan Composition 2Q18
Other 19% L Cl Residential 18% RE 23% CRE, Non Owner Occupied 24% 21 SmartFinancial, Inc.
Slide 22: Loan Composition Over Time
Loan Composition Over Time Loan balance increases due to acquired loans and organic growth Loan composition shifted slightly, with Owner Occupied CRE and Residential RE contributing to a larger percent of the portfolio $1,800,000 $1,600,000 $1,400,000 $1,200,000 Other Residential RE $1,000,000 CRE,
Slide 23: Asset Quality
Asset Quality Excellent asset quality, with Nonperforming Assets at 0.25% of Total Assets Remaining fair value discounts on acquired loans are more than 2.9x the current Allowance For Loan Losses Acquisitions are marked conservatively for potential losses Nonperforming Assets Loan Discounts $6,000 0
Slide 24: Conservative Credit Culture
Conservative Credit Culture Positioning Process Policy Geographically positioned underwriters 6 member Senior Officer Loan Committee Continuous updates to Loan Policy are who manage the market level portfolios and that meets twice weekly made is identified for needed report through the credit
Slide 25: CRE Ratios
CRE Ratios C&D levels (100 Ratio) are still well below regulatory guidance levels Total CRE levels (300 Ratio) remained relatively stable quarter to quarter Managing these ratios are part of our overall organic growth, merger opportunity and capital management strategies 100 Ratio 300 Ratio 150% 350
Slide 26: Foothills Overview
Foothills Overview Knox – Blount – Sevier: Deposit Market Share Market Deposits Number Share in Market of Rank Institution (%) ($mm) Branches 1 First Horizon National Corp. 19.10 2,989 33 2 SunTrust Banks Inc. 15.22 2,382 19 3 Regions Financial Corp. 10.76 1,684 22 4 Home Federal Bank of Tennessee 1
Slide 27: Transaction Rationale
Transaction Rationale Attractive financial transaction with strong geographic fit Strategic Good mix of synergistic opportunities and core market growth Meaningfully additive to SmartFinancial’s 1%+ core ROAA run rate target Strengthens Tennessee footprint Markets & Growth Improves market share posi
Slide 28: Transaction Terms
Transaction Terms Consideration Form 90% Stock / 10% Cash (each shareholder receives stock and cash) Per Share Consideration 0.666 SMBK share and $1.75 in cash per Foothills share Implied CommonAnnounced Price Price per per Share Share1 1 $18.69 Aggregate Announced Transaction Value1 Announced Trans
Slide 29: Key Transaction Assumptions
Key Transaction Assumptions . Cost savings target = 34% of seller’s annual non-interest expense base Expected Cost Savings . 75% realized in 2019 . 100% realized thereafter Merger & Integration Costs . Approximately $3.3 million in combined pre-tax merger expenses . Total loan fair value mark of $3.
Slide 30: Knoxville, TN CSA
Knoxville, TN CSA Knoxville has a strong business community, a diverse industrial base, and the steadying influence of a major university Knoxville is a Desired Location for Business The University of Tennessee Drives Culture And Innovation #5 “Best Place for Business and Careers” according to Forbe
Slide 31: Investor Contacts
Investor Contacts Billy Carroll Miller Welborn President & CEO Chairman (865) 868-0613 (423) 385-3067 Billy.Carroll@SmartBank.com Miller.Welborn@SmartBank.com SmartFinancial, Inc. 5401 Kingston Pike, Suite 600 Knoxville, TN 37919
Slide 32: Supplemental Information
Alb, SmartFinancial, Inc. Supplemental Information
Slide 33: Non-GAAP Reconciliations
Non-GAAP Reconciliations 2Q18 1Q18 4Q17 3Q17 2Q17 Net interest income - ex purchase acct. adj. Net interest income (GAAP) $ 19,538 $ 16,811 $ 15,342 $ 10,924 $ 10,249 Taxable equivalent adjustment 23 16 22 21 21 Net interest income TEY 19,561 16,827 15,364 10,945 10,270 Purchase accounting adjustmen
Slide 34: Non-GAAP Reconciliations
Non-GAAP Reconciliations 2Q18 1Q18 4Q17 3Q17 2Q17 Operating Earnings Net income (GAAP) $ 3,932 $ 3,415 $ 38 $ 1,685 $ 1,648 Securities (gains) losses 1 - - (144) - Merger costs 1,123 498 1,694 303 420 Revaluation of deferred tax assets due to change in tax law - - 2,482 - - Income tax effect of adju
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