Attached files
| file | filename |
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| EX-99.3 - PRESS RELEASE ANNOUNCING ACQUISITION - Capitol Federal Financial, Inc. | cffnccbrelease043018.htm |
| EX-99.1 - PRESS RELEASE ANNOUNCING ACQUISITION AND EARNINGS - Capitol Federal Financial, Inc. | earningsrelease0318.htm |
| 8-K - CURRENT REPORT, ITEMS 2.02, 7.01, 8.01 AND 9.01 - Capitol Federal Financial, Inc. | pressrelease8k0418.htm |
April 30, 2018
Capitol Federal Financial, Inc.
Announces Agreement to Acquire
Capital City Bancshares, Inc.
Except for the historical information contained in this press release, the matters discussed may be deemed to be "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include
statements about our beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions. The words "may," "could,"
"should," "would," "will," "believe," "anticipate," "estimate," "expect," "intend," "plan," and similar expressions are intended to identify
forward-looking statements. Forward-looking statements that involve risks and uncertainties, including the requisite regulatory and
shareholder approvals for this acquisition might not be obtained, the exchange transaction involving the minority shareholders of CCB
might not be consummated, or other conditions to completion of the transaction might not be satisfied or waived; expected costs
savings, synergies and other benefits from Capitol Federal’s merger and acquisition activities, including this acquisition, might not be
realized within the anticipated time frames or at all, and costs or difficulties relating to integration matters, including but not limited to
customer and employee retention, might be greater than expected; changes in economic conditions in the Company's market area;
changes in policies or the application or interpretation of laws and regulations by regulatory agencies and tax authorities; other
governmental initiatives affecting the financial services industry; changes in accounting principles, policies or guidelines; fluctuations in
interest rates; demand for loans in the Company's market area; the future earnings and capital levels of Capitol Federal, which would
affect the ability of the Company to pay dividends in accordance with its dividend policies; competition; and other risks detailed from
time to time in documents filed or furnished by the Company with the SEC. Actual results may differ materially from those currently
expected. These forward-looking statements represent the Company's judgment as of the date of this release. The Company disclaims,
however, any intent or obligation to update these forward-looking statements.
No Offer or Solicitation
This press release is being provided for informational purposes only and does not constitute (i) an offer to purchase, nor a solicitation of
an offer to sell, subscribe for or buy any securities, (ii) an offer to exchange any securities or (iii) the solicitation of any vote for approval of
any transaction. There shall not be any offer, solicitation, sale or exchange of any securities in any state or other jurisdiction in which such
offer, solicitation, sale, or exchange is not permitted.
Safe Harbor Statements
2
Strategically and financially attractive acquisition of a highly regarded, Topeka-based
community commercial bank with approximately $400 million in assets
1) Represents a natural extension of our single family lending model through the expansion of our
product offerings to include commercial lending and commercial deposit services
2) Provides an opportunity to enhance our deposit mix, penetrate our markets through the expansion of
our deposit channels, and improve our cost of deposits, driving stronger future net interest margins,
while allowing for reductions to our loan to deposit ratio
3) Expected to produce approximately 3% EPS accretion in the first full year, growing to the mid-single
digits in the years following (1), while representing only 2.1% of pro forma market capitalization (2)
4) Results in minimal impact to TBVPS, with less than 1% dilution at closing, and with TBVPS dilution
earned back in less than 2.5 years (3)
5) Allows Capitol Federal to remain under $10 billion in assets with this acquisition and for the
foreseeable future, resulting in no need to adjust our current dividend strategy in the near term
Introduction
3
(1) Expected EPS impact excluding transaction related expenses, and measured over the first two years following closing of the merger
(2) Capital City shareholders will own approximately 2.1% of pro forma common shares
(3) Based on the cross-over method; earn-back timeframe excludes any potential increase in the pro forma company dividend related to expected
increases in earnings
100% stock
Fixed exchange ratio of 3.725 shares of CFFN common stock for each share of Capital City
common stock
Transaction Summary
4
$47.08 per share (1)
$37.5 million aggregate deal value (2)
Calculated Transaction Price per
Share and Aggregate Deal Value
Consideration
Late summer 2018 or October 2018Expected Closing
Customary regulatory approval
Capital City shareholder approval (6)Required Approvals
(1) Based upon CFFN’s closing stock price as of April 27, 2018
(2) Aggregate transaction value includes the value of Capital City stock options, which will be cashed out prior to closing
(3) As of March 31, 2018, on an aggregate basis
(4) LTM earnings adjusted for full run-rate cost savings realization of 26.1% (net of anticipated expense additions) applied to the LTM operating expense base
(5) Calculated as aggregate deal value less tangible common equity, divided by core deposits; core deposits defined as total deposits less CDs > $250,000
(6) The Sabatini family members will execute voting agreements accounting for 99.41% of voting shares
Calculated Transaction Multiples (3)
Price / March 31, 2018 tangible book value: 141.3%
Price / March 31, 2018 LTM earnings: 20.8x
Price / March 31, 2018 LTM earnings including cost savings (4): 8.3x
March 31, 2018 tangible book premium to core deposits (5): 3.2%
Capital City’s commercial banking team expected to continue in roles with CFFN
Mr. Bob Kobbeman, Capital City’s Chief Executive Officer, to join CFFN as EVP and lead our
commercial banking operations
Management
Due Diligence Extensive financial, credit, legal, compliance and operational due diligence completed,
including third-party loan, trust and commercial operations review
Family owned bank founded in 1892 in Topeka, Kansas
11 branch offices located within the Topeka, Lawrence, and Kansas City (Overland Park) markets
Strong presence in these communities, providing commercial banking services to small and mid-sized businesses
Culturally similar to Capitol Federal, with emphasis on community commitment and customer service
Low risk balance sheet, with minimal NPAs and attractive cost of deposits
Company Snapshot: Capital City Bancshares, Inc.
$434 million
Capital City Overview
5
Financial Highlights as of March 31, 2018
$302 millionGross Loans
$378 millionTotal Deposits
80%Loans / Deposits
6.1%TCE / TA
0.39%NPAs / Assets
Total Assets
Loan and Deposit Composition (2)
(1) LTM ROAA adjusted to exclude the $679k write-down of Capital City’s deferred tax assets in Q4 2017 related to corporate tax reform
(2) Loan and deposit data as of March 31, 2018
0.64% (1)LTM ROAA
1-4 Family
22.5%
Multifamily
2.6%
Owner-Occ.
RE
18.4%
C & D
5.6%
Non
Owner-Occ.
RE
25.0%
Farm &
Agriculture
2.9%
C & I
20.9%
Consumer
& Other
2.0%
Non-
Interest
Bearing
22.2%
Transaction
Accounts
22.6%
MMDA &
Savings
37.6%
Time <
250K
9.3%
Time >
250K
8.4%
MRQ Yield on Loans: 4.85% MRQ Cost of Deposits: 0.37%
Overlapping Market Presence
6
Pro forma deposit market
share rank of #1 in
Shawnee, Douglas and
Johnson counties
Capital City branch office
locations:
Seven branches in the
Topeka market
Three branches in the
Lawrence market
One branch in the
Kansas City MSA, located
in Overland Park
Branch consolidation
opportunities in the
Topeka and Lawrence
markets
No deposit divestitures
expected due to HHI
measures
Market Overview
CFFN
Capital City
Note: Branch map excludes Capitol Federal’s Manhattan, Emporia, Wichita and Salina branches
Source for map: S&P Global Market Intelligence
Complementary Lines of Business
7
Residential Real Estate Lending
Single-family Construction Lending
Consumer Lending
Commercial Real Estate Lending
Commercial Real Estate Construction Lending
C&I Lending
Business Relationship Banking
Full Suite of Retail Deposit Services
Full Suite of Commerical Deposit Services
Retail Insurance Products
Trust Services
Pro Forma
Capitol Federal
We view this first acquisition of a commercial bank as a low risk transaction, in keeping
with our approach to managing our shareholders’ investment in Capitol Federal
Capital City is a compelling, in-market partner
• Highlighted by solid credit metrics and an experienced commercial banking team, with a high degree of market
and institutional familiarity between our companies
Attractively sized
• Meaningful platform from which to build, but appropriately sized from a risk management perspective
• Allows us to remain under $10 billion in assets at closing, and for the foreseeable future, including our
expectations of future growth within our commercial banking business
Comprehensive due diligence process completed, driving conservative merger and operating
assumptions
• Including an extensive and highly transparent credit review process performed in conjunction with a nationally
recognized third party loan review firm
Represents our entry into organic commercial lending, and into commercial deposit gathering
• However, over the last 5 years, we have gained experience in the commercial real estate lending business
through our correspondent commercial loan participations, which totals $296 million in commercial loan
balances as of March 31, 2018
Low Risk Transaction
8
Expands our commitment to, and presence within, the Topeka, Lawrence and Kansas City markets
Does not change our commitment to our single family lending model
However, complements our core retail competencies through the expansion of our product offerings to include
commercial lending and commercial deposit services
Capital City’s commercial team is well known to us, and expected to remain in roles leading our commercial
banking business going forward, mitigating risk and assisting in retention of client relationships, while driving
future growth
We expect that our deep and long standing relationships with, and knowledge of, our current customer base will
provide opportunities to pursue new commercial banking business
We will pursue a targeted strategy to penetrate our existing retail customer base through the offering of commercial lending and
deposit products in our existing overlapping markets initially, and throughout our footprint over time
Our current customer base is comprised of over 120,000 loan and deposit customers
New opportunity to build a commercial deposit portfolio, driving lower cost of funds, higher net interest
margins and stronger profitability
Core deposits (1) encompass over 93% of Capital City’s deposit portfolio as of March 31, 2018
Capital City currently provides a robust suite of commercial deposit products, including cash management services
Capital City brings a scalable trust business, with over $100 million in AUM as of March 31, 2018
Adds a new revenue stream, aiding in retention of customer relationships, and diversifies and grows our non-interest income
Transaction Rationale
9
Investment
Thesis and
Key
Transaction
Attributes
(1) Core deposits defined as total deposits less public unit deposits without a business relationship as of March 31, 2018
Expected Pro Forma Financial Impact
10
Summary of Expected Financial Impact of the Transaction (1)
Expected to produce approximately 3% accretion to fully diluted EPS in 2019 (2), growing to mid-single digits over
the following few years
Expected to produce approximately (0.8)% dilution to TBVPS at closing
TBVPS dilution earn-back of less than 2.5 years (3)
IRR in excess of 20%
Strong pro forma capital ratios, well in excess of all regulatory thresholds, providing ample opportunities for
continued capital management strategies
No changes expected to future cash dividend levels as compared to stand-alone case; however, expected future
earnings accretion will allow opportunities for the Capitol Federal Board of Directors to weigh options related to
our dividend policy
(1) Estimated financial impact is presented for illustrative purposes using mean analyst consensus estimates for active research analysts; includes purchase
accounting marks and deal related expenses
(2) 2019 EPS impact excluding one-time merger costs; analyst estimates source: S&P Global Market Intelligence as of April 27, 2018
(3) Based on the cross-over method; earn-back timeframe excludes any potential increase in cash dividends resulting from enhanced earnings of the pro
forma company
Appendix
11
Key Transaction Assumptions
12
26.1% net cost savings, identified in detail during our due diligence review, including expense
additions related primarily to commercial banking IT costs across our platform
Cost savings realized 81% in the first 12 months following closing, with 100% realized in future
periods
Cost Savings
Merger-related Charges and
Revenue Synergies
Pre-tax transaction costs of approximately $4.5 million
50% realized pre-closing, 50% realized post-closing
Revenue synergy opportunities identified, but not included in pro forma modeling
Balance Sheet Growth
Assumes Capital City loan and deposit growth of 5% in 2019, then growth of between 10%
and 12% in forward periods (based, in part, on Capitol Federal’s greater capital resources)
Purchase
Accounting
and TruPs
Redemption
Loan Portfolio
(2.3)% gross loan portfolio mark, equating to ($7.2) million
(1.9)% credit mark, equating to ($5.8) million
(0.4)% interest rate mark, equating to ($1.4) million accreting over 6.0 years
OREO (17.4)% mark, equating to ($0.2) million
TruPs $10.2 million of outstanding trust preferred securities redeemed at closing (1)
Low Income Housing
Partnerships
1.75% core deposit intangible, equating to $5.6 million amortized straight-line over 8.0 yearsCDI
HTM Securities (1.2)% mark, equating to ($1.2) million
Mark equating to ($0.4) million
Time Deposits 0.50% mark, equating to $0.3 million amortized over 1.5 years
(1) Inclusive of a $95k call premium
Investor Inquiries
13
700 South Kansas Avenue
Topeka, KS
66603
Main Phone: (785) 235-1341
https://www.capfed.com
John Dicus
Chairman, President & Chief Executive Officer
Direct Phone: (785) 231-6370
Email: jdicus@capfed.com
Kent Townsend
EVP & Chief Financial Officer
Direct Phone: (785) 231-6360
Email: ktownsend@capfed.com