SMARTFINANCIAL, INC. INVESTOR CALL
3Q 2023
October 24, 2023, 10:00am ET
Webcast: www.smartbank.com (Investor Relations)
Audio Only: 1-833-470-1428
Access Code: 071225
Miller Welborn
Chairman of the Board
Billy Carroll
President & CEO
Ron Gorczynski
CFO
DISCLOSURES
Forward-Looking Statements
This presentation may contain statements that are based on management's current estimates or expectations of future events or future results, and that may be deemed to constitute forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These statements on SmartFinancial Inc.'s ("SmartFinancial") business and financial results and conditions, are not historical in nature and can generally be identified by such words as "expect," "anticipate," "intend," "plan," "believe," "seek," "may," "estimate," and similar expressions. All forward-looking statements are subject to risks, uncertainties, and other factors that may cause the actual results of SmartFinancial to differ materially from future results expressed or implied by such forward-looking statements. Such risks, uncertainties, and other factors include, among others, (1) the risk of litigation and reputational risk associated with historic acquisition activity; (2) the risk that cost savings and revenue synergies from recently completed acquisitions may not be realized or may take longer than anticipated to realize; (3) disruption from recently completed acquisitions with customer, supplier, employee, or other business relationships; (4) our ability to successfully integrate the businesses acquired as part of previous acquisitions with the business of SmartBank; (5) changes in management's plans for the future; (6) prevailing, or changes in, economic or political conditions, particularly in our market areas, including the effects of declines in the real estate market, inflationary pressures, elevated interest rates and slowdowns in economic growth, as well as the financial stress on borrowers as a result of the foregoing; (7) increased technology and cybersecurity risks, including generative artificial intelligence risks; (8) credit risk associated with our lending activities; (9) changes in loan demand, real estate values, or competition; (10) developments in our mortgage banking business, including loan modifications, general demand, and the effects of judicial or regulatory requirements or guidance; (11) changes in accounting principles, policies, or guidelines; (12) changes in applicable laws, rules, or regulations; (13) adverse results from current or future litigation, regulatory examinations or other legal and/or regulatory actions, including as a result of SmartFinancial's participation in and execution of government programs related to the COVID-19 pandemic and related variants; (14) potential impacts of adverse developments in the banking industry highlighted by high-profile bank failures, including impacts on customer confidence, deposit outflows, liquidity and the regulatory response thereto; (15) significant turbulence or a disruption in the capital or financial markets and the effect of a fall in stock market prices on our investment securities; (16) the effects of war or other conflicts including the impacts related to or resulting from Russia's military action in Ukraine or the conflict in Israel and surrounding areas; and (17) other general competitive, economic, political, and market factors, including those affecting our business, operations, pricing, products, or services. These and other factors that could cause results to differ materially from those described in the forward-looking statements can be found in SmartFinancial's most recent annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, in each case filed with or furnished to the Securities and Exchange Commission (the "SEC") and available on the SEC's website (www.sec.gov). Undue reliance should not be placed on forward-looking statements. SmartFinancial disclaims any obligation to update or revise any forward-looking statements contained in this release, which speak only as of the date hereof, whether as a result of new information, future events, or otherwise.
Non-GAAP Financial Measures
Statements included in this presentation include Non-GAAP financial measures and should be read along with the accompanying tables, which provide a reconciliation of Non-GAAP financial measures to GAAP financial measures. SmartFinancial management uses several Non-GAAP financial measures, including: (i) operating revenue, (ii) operating earnings, (iii) operating return on average assets, (iv) operating return on average shareholders' equity, (v) return on average tangible common equity, (vi) operating return on average tangible common equity, (vii) operating efficiency ratio; (viii) tangible common equity; (ix) average tangible common equity; (x) tangible book value; (xi) operating pre-provision net revenue earnings; (xii) operating noninterest income; (xiii) operating noninterest expense; (xiv) tangible assets; and ratios derived therefrom, in its analysis of the company's performance. Operating revenue includes the earnings from net interest income and operating noninterest income (Non-GAAP). Operating earnings excludes the following from net income: securities gains and losses, merger related and restructuring expenses, and the income tax effect of adjustments. Operating return on average assets is the annualized operating earnings (Non-GAAP) divided by average assets. Operating return on average shareholders' equity is the annualized operating earnings (Non-GAAP) divided by average equity. Return on average tangible common equity is the annualized net income divided by average tangible common equity (Non-GAAP). Operating return on average tangible common equity is the annualized operating earnings (Non-GAAP) divided by average tangible common equity (Non-GAAP). The operating efficiency ratio includes an adjustment for taxable equivalent yields and excludes securities gains and losses and merger related and restructuring expenses from the efficiency ratio. Tangible common equity and average tangible common equity exclude goodwill and other intangible assets from shareholders' equity and average shareholders' equity. Tangible book value excludes goodwill and other intangible assets less shareholders' equity divided by common shares outstanding. Operating pre-provision, net- revenue earnings is net interest income plus operating noninterest income (Non-GAAP) less operating noninterest expense (Non-GAAP). Operating noninterest income excludes the following from noninterest income: securities gains and losses. Operating noninterest expense excludes the following from noninterest expense: prior year adjustments to salaries, merger related and restructuring expenses and certain franchise tax true-up expenses. Tangible assets excludes goodwill and other intangibles from total assets. Management believes that Non-GAAP financial measures provide additional useful information that allows investors to evaluate the ongoing performance of the company and provide meaningful comparisons to its peers. Management believes these non-GAAP financial measures also enhance investors' ability to compare period-to-period financial results and allow investors and company management to view our operating results excluding the impact of items that are not reflective of the underlying operating performance. Non-GAAP financial measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider SmartFinancial's performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the company. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the results or financial condition as reported under GAAP.
2
QUARTERLY HIGHLIGHTS: THIRD QUARTER 2023
$0.43
Diluted Operating
EPS1
3.1%
QoQ2 Annualized
Tang. Book Value
Per Share Growth
(Excluding AOCI)1,4
0.60%
Operating Return on
Average Assets1
8.5%
Operating Return
Average Tang.
Common Equity1
74%
Operating Efficiency
Ratio1
$160
Million Securities
Repositioned
5.0%
QoQ Annualized
Organic Loan3
Growth
4.5%
QoQ Annualized Deposit Growth
80%
Loan / Deposit
Ratio
0.12%
Non-Performing Assets / Assets
Diluted Earnings Per Share
$0.68 $0.69
$0.52 $0.52
$0.43
$0.12 | ||||||
3Q22 | 2Q23 | 3Q23 | ||||
GAAP EPS | Diluted Operating EPS 1 | |||||
Return on Average Assets
0.95% 0.96%
0.75% 0.75%
0.60%
0.17% | ||||
3Q22 | 2Q23 | 3Q23 | ||
GAAP ROAA | Operating ROAA 1 | |||
Book Value Per Share
$26.16$26.28
$24.56
$21.84$21.95
$20.43 | $19.78 | $19.94 |
$18.02
$19.78$19.94
$18.02
3Q22 | 2Q23 | 3Q23 | ||
BV Per Share | TBV Per Share 1 | |||
AOCI Impact 1,4 | ||||
Return on Average Tangible
Common Equity
14.4% 14.4%
10.6% 10.6%
8.5%
2.4% | ||||
3Q22 | 2Q23 | 3Q23 | ||
GAAP ROATCE | Operating ROATCE 1 | |||
Unless otherwise indicated, financial data as of or for the three months ended 9/30/23
- Non-GAAPfinancial measure - for a reconciliation of Non-GAAP financial measures to their most directly comparable GAAP measures, see the Appendix
- QoQ: Quarter-over-Quarter
- "Loans" for purposes of this presentation includes all SmartFinancial loans and leases
- AOCI: Accumulated Other Comprehensive Income
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SMARTFINANCIAL: EXPANDING SOUTHEAST FRANCHISE
$4.8 | Nashville | Knoxville | |
Billion in Total | |||
Assets | |||
$3.4 | Huntsville | Chattanooga | |
Billion in Total | Birmingham | ||
Loans | |||
Tuscaloosa | |||
$4.2 | Auburn | ||
Montgomery | |||
Billion in Total | |||
Deposits | Dothan | ||
SmartBank Branch Offices | |||
42 | Mobile | ||
Tallahassee | |||
Pensacola | Panama City | ||
Total Branches | |||
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.
Balance sheet and branch count represent 6/30/23 balances 1) Knox News Sentinel Top Workplaces survey
1
4
MARKET AREA: TARGETING INDUSTRY RICH GROWTH MARKETS
$ in Billions, unless otherwise indicated
Expanding Markets
- Total Population: 6.0 Million
- Total Deposits: $207 Billion
- Median Income: $69 Thousand
Legacy Markets1: Strong Relationships / Deep Market Penetration | ||||||||||||
CAGR: 6% | $2.4 | $2.3 | Forbes | |||||||||
Loans | $2.1 | |||||||||||
Top 200 | ||||||||||||
SMBK | $2.0 | |||||||||||
Best Places | ||||||||||||
for Business and | ||||||||||||
12/31/20 | 12/31/21 | 12/31/22 | 9/30/23 | Careers | ||||||||
SmartBank Branch Offices | CAGR: 11% | Knoxville: #86 | ||||||||||
Expanding Market Area | Deposits | $3.5 | $3.4 | $3.4 | Huntsville: #93 | |||||||
Mobile: #184 | ||||||||||||
Legacy Market Area | $2.5 | Chattanooga: #116 | ||||||||||
Urban area Density | SMBK | |||||||||||
12/31/20 | 12/31/21 | 12/31/22 | 9/30/23 | |||||||||
Expanding Markets2: Building Talent / Growing Brand Awareness | ||||||||||||
CAGR: 41% | $0.9 | $1.0 | Forbes | |||||||||
Loans | ||||||||||||
$0.6 | Top 200 | |||||||||||
SMBK | $0.4 | |||||||||||
Best Places | ||||||||||||
for Business and | ||||||||||||
12/31/20 | 12/31/21 | 12/31/22 | 9/30/23 | Careers | ||||||||
CAGR: 48% | $0.9 | Nashville: #15 | ||||||||||
Legacy Markets | Tallahassee: #103 | |||||||||||
Deposits | $0.7 | |||||||||||
► Total Population: 2.8 Million | $0.5 | Pensacola: #105 | ||||||||||
Birmingham: #165 | ||||||||||||
► Total Deposits: $70 Billion | SMBK | $0.3 | Montgomery: #191 | |||||||||
► Median Income: $64 Thousand | ||||||||||||
12/31/20 | 12/31/21 | 12/31/22 | 9/30/23 | |||||||||
1) | Legacy Markets include Chattanooga, TN, Clarke, AL, Cleveland, TN, Crossville, TN, Cookeville, TN, Fentress, TN, Huntsville, AL, Knoxville, TN, Sevierville, TN, Tullahoma, TN and Tuscaloosa, AL MSAs | |
2) | Expanding Markets include Auburn, AL, Birmingham, AL, Dothan, AL, Fairhope, AL, Fort Walton/Destin, FL, Montgomery, AL, Mobile, AL, Nashville, TN, Panama City, FL, Pensacola, FL and Tallahassee, FL | 5 |
Source: S&P Market Intelligence; https://www.forbes.com/best-places-for-business | ||
Note: Expanding and Legacy market statistics based on the weighted average of the MSAs included in each area based on population; Legacy market area includes settlement and corporate balances
LOAN PORTFOLIO: SOLID MARKETS PROVIDING OPPORTUNITY
$ in Millions, unless otherwise indicated
Total Loans
CAGR of 15% Since 2018
Loan Composition
History of Strong Organic Growth
$4,000 | 10. 00% | ||||
$3,500 | $3,282 | $3,338 | $3,379 | ||
$3,254 | 9. 00% | ||||
$3,000 | |||||
$2,693 | 8. 00% | ||||
$2,500 | $2,382 | ||||
7. 00% | |||||
$2,000 | $1,897 | ||||
$1,775 | |||||
6. 00% | |||||
$1,500 | 5.52% | ||||
5.39% | |||||
5.20% | |||||
5. 00% | |||||
$1,000 | |||||
4. 00% | |||||
$500 | |||||
$- | 3. 00% |
$3,099
18%
13%
16%
27%
23%
$3,254 $3,282
18% 18%
12% 12%
17% 17%
27% 27%
24% 23%
$3,338 $3,379
19% 19%
12% 11%
18% 18%
26% 26%
23% 23%
2018Y | 2019Y | 2020Y | 2021Y | 2022Y | 1Q23 | 2Q23 | 3Q23 |
Average Loan Yield
(excluding accretion & fees)
3Q22 | 4Q22 | 1Q23 | 2Q23 | 3Q23 | |||||
CRE, OO | CRE, NOO | C&I | |||||||
C&D | Consumer RE | Leases & Other | |||||||
6
LOAN CONCENTRATION: WELL BALANCED EXPOSURE
Non-Owner Occupied CRE Exposure By Segment
Highly Diversified with
Seasoned Client Base
Construction & Development
Exposure By Type1
Closely Monitored with No
Concentration Concerns
Hotel &
Retail
Space
14%
Resi/Comm | |
Resi/Comm | Land |
15% | |
Land Dev. | |
11% | Multifamily |
Hospitality
34%
Office Space
13%
Multifamily
18%
Misc.
10%
$901 Million2 - 26% of Total Loans
Office Space Portfolio Loan Average: $1.3 Million / 1.75x DCR / 56% LTV
8% | |
1-4 Family | |
(NOO) | CRE (OO) |
23% | |
15% | |
CRE (NOO)
16%
$374 Million2 - 11% of Total Loans
1) | 1-4 Family (OO) includes owner-occupied primary and secondary residence construction loans; 1-4 Family (NOO) includes speculative and investment property residential construction loans; Resi/Comm Land Dev. includes primary, secondary, investment and | |
commercial land development loans; Resi/Comm Land includes residential and commercial improved and unimproved land loans; Multifamily includes 5 or more residential property loans; CRE (OO) includes construction loans for owner-occupied commercial | ||
real estate including hotel & hospitality, retail, office, industrial & warehouse, self storage and other commercial real estate; CRE (NOO) includes construction loans for non owner-occupied commercial real estate including hotel & hospitality, retail, office, | 7 | |
industrial & warehouse, self storage and other commercial real estate | ||
2) | Outstanding principal balance shown |
ASSET QUALITY: STRONG UNDERWRITING PAYS DIVIDENDS
$ in Thousands, unless otherwise indicated
Nonperforming Assets
$5,712 $5,881
$4,605 $4,808 $5,021
0.10% | 0.10% | 0.11% | 0.12% | 0.12% |
3Q22 | 4Q22 | 1Q23 | 2Q23 | 3Q23 |
Nonperforming Loans | OREO & Other Repos | Nonperforming Assets / Total Assets |
Delinquent and Nonaccruals / Total Loans
$9,094
$8,343 $8,438
$6,398 $6,744
0.21% | 0.21% | 0.25% | 0.25% | 0.27% |
Commercial Real Estate Concentration
301% 299%
287% | 285% | 285% |
98%94%
88% | 88% | 84% |
3Q22 | 4Q22 | 1Q23 | 2Q23 | 3Q23 | |
CRE Loans / Capital | C&D Loans / Capital | ||||
Allowance Reconciliation
3Q22 | 4Q22 | 1Q23 | 2Q23 | 3Q23 |
Total Delinquent & Nonaccrual Loans & Leases
Total Delinquent & Nonaccrual Loans & Leases / Total Loans & Leases
$32,279 $32,747
$22,769 $23,334
$33,687
Credit Quality
0.31%
0.26% 0.26%
0.22% 0.22%
0.02% | 0.03% | 0.03% | 0.04% | |
-0.01% | ||||
3Q22 | 4Q22 | 1Q23 | 2Q23 | 3Q23 |
Classified Loans and Leases / Total Loans & Leases | Net Chargeoffs |
0.98%0.98%1.00%
0.73%0.72%
3Q22 | 4Q22 | 1Q23 | 2Q23 | 3Q23 | |
Allowance for Credit Losses (ACL) | ACL / Loans HFI | ||||
8
DEPOSIT PORTFOLIO: DEFENDING DEPOSIT MARKET SHARE
$ in Millions, unless otherwise indicated
Total Deposits
Loans to Deposits Ratio of 80%
$4, 500 | $4,247 | |||||||
$4,022 | $4,077 | $4,230 | $4,200 | |||||
5. 00% | ||||||||
$4, 000 | ||||||||
$3, 500 | ||||||||
4. 00% | ||||||||
$3, 000 | $2,805 | |||||||
$2, 500 | ||||||||
3. 00% | ||||||||
$1,922 | $2,047 | |||||||
$2, 000 | ||||||||
2.20% | ||||||||
1.89% | 2. 00% | |||||||
$1, 500 | ||||||||
1.56% | ||||||||
$1, 000 | ||||||||
1. 00% | ||||||||
$500 | ||||||||
$- | 0. 00% | |||||||
2018Y | 2019Y | 2020Y | 2021Y | 2022Y | 1Q23 | 2Q23 | 3Q23 |
Average Total Deposit Cost
Deposit Composition
Overall Stability Despite Some Mix Shift
$4,280 | $4,077 | $4,230 | $4,200 | $4,247 | |||
11% | |||||||
12% | 13% | 13% | |||||
11% | |||||||
39% | 39% | 42% | |||||
41% | 42% | ||||||
22% | 24% | ||||||
23% | 22% | 23% | |||||
28% | 26% | 23% | 24% | 22% | |||
3Q22 | 4Q22 | 1Q23 | 2Q23 | 3Q23 | |||
Noninterest Demand | Interest-Bearing Demand | ||||||
Money Market and Savings | Time Deposits | ||||||
9
SECURITIES DETAIL: ACCELERATION OF PRINCIPAL RETURN IN Q3
$ in Millions, unless otherwise indicated
Portfolio Summary
$709 Million Book Value | 4.9 Year Average Life |
2.68% Book Yield | 3.3 Year Effective Duration |
($69) Million Unrealized Loss | 61% / 39% (AFS / HTM) |
- ($43) Million in Available-for-Sale Securities (AFS)
- ($26) Million in Held-to-Maturity (HTM)
Portfolio Mix by Par Value
Risk Adverse Portfolio Designed for Liquidity
$280
$162
$39 | $46 | $64 | ||||||
$35 | $20 | $33 | ||||||
$3 | ||||||||
UST/Agency | MBS Fixed | ARM | CMO Fixed | CMO Float | Agen CMBS | Small Bus | Municipal | Corporate |
Principal Cashflow Schedule
~$184 Million Maturing by Q2 '24
$118 | 36% |
33%
31%
27%
$58
$8 | $14 | $10 | $8 | $10 | $10 | $10 | |||||||||||||||||
Q4 '23 | Q2 '24 | Q4 '24 | Q2 '25 | Q4 '25 | |||||||||||||||||||
Quarterly Principal | Cumulative Principal Returned as % of Total | ||||||||||||||||||||||
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Disclaimer
SmartFinancial Inc. published this content on 23 October 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 23 October 2023 22:16:36 UTC.
