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Section 1: 8-K (8-K)

Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Date of earliest event reported: January 21, 2020

SMARTFINANCIAL, INC.
(Exact name of registrant as specified in its charter)
 

Tennessee
 
333-203449
 
62-1173944
(State or other jurisdiction of incorporation)
 
(Commission File Number)
 
(IRS Employer Identification No.)
 

5401 Kingston Pike, Suite 600
 
 
Knoxville, Tennessee
 
37919
(Address of Principal Executive Offices)
 
(Zip Code)
  
(Registrant’s telephone number, including area code: (865) 437-5700 
 Not Applicable
(Former name or former address, if changed since last report) 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading
Symbol(s)
 
Name of Exchange on which Registered
Common Stock, par value $1.00 per share
 
SMBK
 
The Nasdaq Stock Market
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐






Item 2.02
Results of Operations and Financial Condition.
 
On January 21, 2020, SmartFinancial, Inc. (SmartFinancial") issued a press release (the "Press Release") reporting earnings results for its fourth quarter ending December 31, 2019. A copy of the Press Release is attached hereto as Exhibit 99.1. 

The information in Item 2.02 of this report (including Exhibit 99.1) shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 7.01
Regulation FD Disclosure.

SmartFinancial is filing an investor slide presentation that it intends to review in conjunction with its earnings release conference call on January 22, 2020. The slides are attached hereto as Exhibit 99.2.

The information in Item 7.01 of this report (including Exhibit 99.2) shall not be deemed to be “filed” for the purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.


Item 9.01
Financial Statements and Exhibits
Exhibit No.
Description
99.1
Press release announcing fourth quarter 2019 financial results dated January 21, 2020

99.2
Fourth quarter 2019 investor presentation






SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
SMARTFINANCIAL, INC.
 
 
Date: January 21, 2020
 
 
/s/ William Y. Carroll, Jr.
 
William Y. Carroll, Jr.
 
President & Chief Executive Officer





EXHIBIT INDEX 

Exhibit No.
 
Description
 
 
 
 
Press release announcing fourth quarter 2019 financial results dated January 21, 2020
 
Fourth quarter 2019 investor presentation




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Section 2: EX-99.2 (EXHIBIT 99.2)

a123119earningsexhibit99
Fourth Quarter 2019 Earnings Release January 21, 2020


 
Legal Disclaimer Forward-Looking Statements This news release 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. These statements 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 related to the termination of our agreement and plan of merger with Entegra Financial Corp. (the “Entegra Merger Agreement”) or the abandonment of the transactions that were contemplated by the Entegra Merger Agreement; (2) reputational risk resulting from the termination of the Entegra Merger Agreement; (3) potential changes to, or the risk that we may not be able to execute on, our business strategy as a result of the termination of the Entegra Merger Agreement; (4) the risk that cost savings and revenue synergies from recently completed acquisitions may not be realized or may take longer than anticipated to realize; (5) disruption from recently completed acquisitions with customer, supplier, employee, or other business relationships; (6) our ability to successfully integrate the businesses acquired as part of previous acquisitions with the business of SmartBank; (7) risks related to the proposed acquisition of PFG, including the risk that the proposed acquisition does not close when expected or at all because conditions to closing are not satisfied on a timely basis or at all, or the terms of the proposed transaction need to be modified to satisfy such conditions; (8) the risk that the anticipated benefits from the proposed acquisition of PFG may not be realized in the time frame anticipated; (9) changes in management’s plans for the future; (10) prevailing, or changes in, economic or political conditions, particularly in our market areas; (11) credit risk associated with our lending activities; (12) changes in interest rates, loan demand, real estate values, or competition; (13) changes in accounting principles, policies, or guidelines; (14) changes in applicable laws, rules, or regulations; and (15) 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) net operating earnings, (ii) net operating return on average assets, (iii) net operating return on average shareholder equity, (iv) return on average tangible common equity, (v) net operating return on average tangible common equity, (vi) operating efficiency ratio; (vii) tangible common equity; (viii) average tangible common equity; (ix) tangible book value; and ratios derived therefrom, in its analysis of the company's performance. Net operating earnings excludes the following from net income: securities gains and losses, merger termination fee of $6.4 million in the second quarter of 2019, merger related and restructuring expenses, the effect of the December 2017 tax law change on deferred tax assets, tax benefit from director options previously exercised, and the income tax effect of adjustments. Net operating return on average equity is the annualized net operating earnings divided by average assets. Net operating return on average equity is the annualized net operating earnings divided by average equity. Return on average tangible common equity is the annualized net income divided by average tangible common equity. Net operating return on average tangible common equity is the annualized net operating earnings 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 excludes goodwill and other intangible assets. Tangible book value excludes intangible assets and goodwill. 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


 
Overview of SmartFinancial . SmartFinancial, Inc. (Nasdaq: SMBK) is a $2.4 billion Branch Footprint asset bank holding company headquartered in Knoxville, Tennessee Nashville Knoxville Greensboro . Jonesboro Operates one subsidiary bank, SmartBank, which was founded in 40 January 2007 ARKANSAS . Located primarily in attractive, high-growth markets throughout TENNESSEE NORTH CAROLINA East/Mid Tennessee, Alabama and the Florida PanhandleMemphis Chattanooga . 399 full-time employees 77 . ~$324 million market capitalization(1) Huntsville SOUTH 85 CAROLINA . Balance Sheet (12/31/19) . Assets: $2.4 billion Atlanta Birmingham 20 . Gross Loans: $1.9 billion . Deposits: $2.0 billion Tuscaloosa GEORGIA . Shareholders’ Equity / Tangible Common EquityMISSISSIPPI(Non-GAAP): $313.0 million / $235.6 million ALABAMA Columbus Jackson 16 . Profitability (Q4 ’19) Montgomery Savannah . Net Income / Net Operating Earnings (Non-GAAP): $6.7 million / $6.5 million 65 75 . ROAA / Net Operating ROAA (Non-GAAP): 1.12% / 1.08% 95 . ROATCE / Net Operating ROATCE (Non-GAAP): 11.6% / 11.1% . Efficiency Ratio / Operating Efficiency Ratio (Non-GAAP): 67.0% / Mobile 10 65.0% Baton Rouge Tallahassee SMBK Branch . Asset Quality New Orleans FLORIDA . Superior asset quality and proven credit culture . NPAs / Total Assets of 0.21% . Initiated Regularly Quarterly Dividend . Declared quarterly cash dividend of $0.05 per share Financial data as of or for the three months ended 12/31/19 (1) Pricing data as of 01/17/20 Note: For a reconciliation of Non-GAAP financial measures to their most directly comparable GAAP measures, see the Appendix 3


 
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 Act with Integrity Delivering Be Enthusiastic Exhibiting Creating Exceptional, Over-The-Top Create Positivity “WOW” Professional & Enthusiasm emonstrate Accountability Experiences Knowledgeable D and Positivity Embrace Change Service Positioning Statement At SmartBank, delivering unparalleled value to our Shareholders, Associates, Clients and the Communities we serve 9 drives every decision and action we take. Exceptional value means being there with smart solutions, fast responses and deep commitment every single time. By doing this, we will create the Southeast’s next, great community banking franchise. 4


 
Fourth Quarter Financial Highlights


 
Solid Earnings Track Record $8,000 Capstone Southern Foothills Acquisition Acquisition Acquisition $6,000 GAAP) - $4,000 $2,000 Net Operating Net (Non Operating Earnings ($000) $0 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 Net Operating Earnings, Less Accretion Accretion, Net of Tax ($ in thousands) 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 Net Operating Earnings (Non-GAAP) $3,707 $3,810 $4,844 $4,966 $5,907 $5,509 $5,603 $6,016 $6,487 Less: Accretion, Net of Tax ($1,567) ($943) ($1,911) ($894) ($2,039) ($1,392) ($1,017) ($939) ($1,038) Net Operating Earnings, Less Accretion $2,140 $2,867 $2,933 $4,072 $3,869 $4,117 $4,586 $5,077 $5,450 Note: For a reconciliation of Non-GAAP financial measures to their most directly comparable GAAP measures, see the Appendix 6


 
Performance Trends . Net Operating Earnings (Non-GAAP) of $6.5 ROAA (%) ROATCE (%) million for the quarter, up 10% from a year 1.56 % 16.8 % earlier 1.17 % 13.1 % 1.07 % 1.12 % 1.08 % 12.0 % 0.96 % 1.01 % 1.02 % 10.8 % 11.6 % 11.1 % 0.98 % 10.3 % 10.5 % 10.6 % 0.84 % 9.3 % . ROAA of 1.12% for the quarter and Net Operating ROAA (Non-GAAP) of 1.08% . ROATCE (Non-GAAP) of 11.6% for the quarter and Operating ROATCE (Non-GAAP) Reported Operating (1) of 11.1% . Efficiency Ratio of 67.0% for the quarter and Operating Efficiency Ratio (Non-GAAP) of Net Interest Margin (%) Efficiency Ratio (%) 65.0% 68.7 % 67.7 % 67.0 % 4.29 % 65.6 % 65.0 % 4.09 % 64.3 % 3.94 % 63.0 % 62.4 % 3.83 % 3.91 % 3.84 % 61.7 % . Net Interest Margin (fully taxable equivalent 3.73 % 3.68 % 3.68 % 3.59 % “FTE”) of 3.84%, down 7 basis points from 57.5 % the prior quarter . Nonperforming Assets were 0.21% of Total Assets Reported Operating (1) (1) Operating profitability (Non-GAAP) figures exclude gain on sale of securities, merger termination fees, merger-related and restructuring expenses and non-operating items; net interest margin excludes purchase accounting adjustments Note: For a reconciliation of Non-GAAP financial measures to their most directly comparable GAAP measures, see the Appendix 7


 
Balance Sheet Trends Total Assets ($mm) Net Loans ($mm) $2,000 $2,500 $2,391 $2,449 $1,893 $2,354 $2,390 $1,832 $1,828 $1,858 $2,274 $1,769 $2,300 $1,800 $2,100 $1,600 $1,900 $1,400 $1,700 $1,200 $1,500 $1,000 4Q18 1Q19 2Q19 3Q19 4Q19 4Q18 1Q19 2Q19 3Q19 4Q19 Total Deposits ($mm) Book Value Per Share $2,200 $22.33 $22.50 $21.47 $21.93 $2,047 $20.82 $1,994 $2,012 $1,998 $20.31 $2,000 $1,922 $20.00 $1,800 $16.82 $17.50 $15.86 $16.37 $14.64 $15.18 $1,600 $15.00 $1,400 $12.50 $1,200 $10.00 4Q18 1Q19 2Q19 3Q19 4Q19 4Q18 1Q19 2Q19 3Q19 4Q19 Book Value Tangible Book Value (Non-GAAP) Note: For a reconciliation of Non-GAAP financial measures to their most directly comparable GAAP measures, see the Appendix 8


 
Net Interest Income . Net Interest Margin (FTE) decreased quarter-to-quarter primarily due to the three Federal rate decreases during the third and fourth quarters of 2019 . Compared quarter-to-quarter, Earning Asset Yields have decreased 13 basis points; the Average Cost of Interest-bearing Liabilities have decreased 8 basis points . Excluding the effect of purchase accounting adjustments, the Net Interest Margin (FTE) decreased 9 basis points quarter-to-quarter ($ in thousands) 4Q19 3Q19 4Q18 Average Yields and Rates 4Q19 3Q19 4Q18 Net Interest Income (FTE) $21,120 $21,250 $21,541 Loans, less accretion 5.07% 5.22% 5.17% Average Earning Assets $2,190,508 $2,157,193 $1,990,262 Accretion 0.29% 0.26% 0.64% Loans 5.36% 5.48% 5.81% Taxable securities 2.38% 2.49% 2.09% Tax-exempt securities (FTE) 3.10% 3.14% 4.04% Net Interest Margin Federal funds and other investments 1.74% 2.18% 2.99% 5.50% Earning Asset Yields 4.92% 5.05% 5.36% 4.50% Total Interest-Bearing Deposits 1.29% 1.37% 1.21% Securities sold under agreement to repurchase 0.35% 0.31% 0.33% Federal funds purchased and other borrowings 1.00% 0.58% 4.97% 3.50% Subordinated debt 5.90% 5.91% 5.91% Total Interest-Bearing Liabilities 1.39% 1.47% 1.33% 2.50% 4Q18 1Q19 2Q19 3Q19 4Q19 Net Interest Margin (FTE) 3.84% 3.91% 4.28% Net Interest Margin (FTE) Net Interest Margin (FTE - ex Purchase Acct. Adj.) 3.59% 3.68% 3.83% Net Interest Margin (FTE - ex Purchase Accounting Adj.) (Non-GAAP) Cost of Funds 1.15% 1.21% 1.12% Note: For a reconciliation of Non-GAAP financial measures to their most directly comparable GAAP measures, see the Appendix 9


 
Operating (Non-GAAP) Noninterest Income . Consistent increases in service charges on deposit accounts . Slight decline in mortgage banking income linked quarter, continued growth year-over-year . Other noninterest income components stable over quarters presented ($ in thousands) Operating (Non-GAAP) Noninterest Income $2,500 $2,000 $1,500 Other Noninterest Income Mortgage Banking Income $1,000 Service Charges on Deposit Accounts $500 $0 4Q18 1Q19 2Q19 3Q19 4Q19 Note: For a reconciliation of Non-GAAP financial measures to their most directly comparable GAAP measures, see the Appendix 10


 
Operating (Non-GAAP) Noninterest Expense . Operating Efficiency Ratio (Non-GAAP) remained under 65% for the fifth consecutive quarter . Salary increases are driven by our continued investment in hiring talented revenue producing associates in order to complement our strategic initiatives . Continued investment in infrastructure ($ in thousands) Operating (Non-GAAP) Noninterest Expense $20,000 $15,000 Other Amortization of Intangibles $10,000 Data Processing Occupancy $5,000 Salaries & Benefits $0 4Q18 1Q19 2Q19 3Q19 4Q19 Note: For a reconciliation of Non-GAAP financial measures to their most directly comparable GAAP measures, see the Appendix 11


 
Attractive Deposit Mix Deposit Composition (12/31/19) Historical Deposit Composition ($mm) $2,500 Noninterest Demand $2,047 $1,994 $2,012 $1,998 Time 18% $2,000 $1,922 Deposits 33% Interest- $635 $673 $647 $680 bearing $649 $1,500 Demand Money 19% Market and Savings $623 30% $1,000 $698 $648 $635 $642 Historical Cost of Deposits $334 $351 $380 $500 $311 $332 3.00% 2.50% $320 $329 $357 $365 $364 2.50% 2.50% 2.50% 2.00% $0 1.50% 2.00% 4Q18 1Q19 2Q19 3Q19 4Q19 1.75% 1.00% Noninterest Demand Interest-bearing Demand 1.10% 1.18% 1.00% 1.13% 1.06% 0.50% Money Market and Savings Time Deposits 0.00% 4Q18 1Q19 2Q19 4Q19 3Q19 Cost of Deposits Fed Funds Target 12


 
Overview of Loan Portfolio Loan Composition (12/31/19) Historical Loan Composition ($mm) Other $2,500 <1% Consumer RE 22% CRE, Non $2,000 $1,903 Owner $1,841 $1,837 $1,868 Occupied C&I $1,777 18% 25% $423 $411 $406 $406 $407 $1,500 CRE, C&D Owner $476 Occupied 12% $473 $464 $468 $488 23% $1,000 $416 $416 $422 $429 $372 Historical CRE Ratios $500 $187 $205 $220 $228 400% $188 300% $308 $341 $334 $341 $337 265% $0 200% 4Q18 1Q19 2Q19 3Q19 4Q19 100% 84% C&I C&D 0% CRE, Owner Occupied CRE, Non Owner Occupied 4Q18 1Q19 2Q19 3Q19 4Q19 Consumer RE Other CRE C & D 13


 
Asset Quality . Superior asset quality, with Nonperforming Assets at 0.21% of Total Assets compared to the Nonperforming Assets ($ in thousands) Southeast Peer Median (1) of 0.59% $9,000 1.00% . Remaining fair value discounts on acquired $6,000 0.59% 0.70% loans are 1.5x the current Allowance For Loan $3,000 0.21%0.40% Losses $0 0.10% 4Q18 1Q19 2Q19 3Q19* 4Q19 . Allowance for loan losses to loans is 0.54% at Foreclosed Assets 4Q19 Nonperforming Loans . Proven credit culture, with Net Charge-Offs to Nonperforming Assets/ Total Assets (SMBK) Average Loans of 0.01% compared to the Nonperforming Assets/ Total Assets (SE Peer Median) (1) Southeast Peer Median (1) of 0.03% Loan Discounts ($ in thousands) Net Charge-Offs/ Average Loans $30 0.90% 0.15% $20 0.60% 0.10% $10 0.30% 0.05% $0 0.00% 0.03% 4Q18 1Q19 2Q19 3Q19 4Q19 0.00% 0.01% Allowance for Loan Losses (GAAP) (0.05%) Net Acquisition Accounting Fair Falue Discounts to Loans 4Q18 1Q19 2Q19 3Q19* 4Q19 Allowance for Loan Losses/ Loans SMBK SE Peer Median (1) Source: S&P Global Market Intelligence (1) Major-exchange (NYSE, NYSEAM, NASDAQ) traded banks between $1.5B and $3B in assets headquartered in the Southeast (AL, AR, FL, GA, LA, MS, NC, SC, TN and WV) as of 09/30/19 14 * Peer median data held constant from 3Q19 due to unavailable 4Q19 data as of SMBK reporting date


 
Reported and Operating (Non-GAAP) Earnings . Fourth quarter 2019 operating earnings increased 8% from the prior linked quarter, and increased 10% to same prior year quarter . Quarterly operating earnings overall had directionally consistent growth . Full year operating earnings increased 21% from 2018 to 2019 Quarterly Earnings Full Year Earnings ($ in thousands) ($ in thousands) $26,548 $23,615 $9,121 $19,516 $18,102 $6,444 $6,733 $6,487 $5,963 $6,016 $5,907 $5,509 $5,603 $4,731 Reported Operating (1) Reported Operating (1) (1) Operating (Non-GAAP) figures exclude gain on sale of securities, merger termination fees, merger-related and restructuring expenses and non-operating items Note: For a reconciliation of Non-GAAP financial measures to their most directly comparable GAAP measures, see the Appendix 15


 
Summary of Moving Forward Initiatives The company is Moving Forward with several major initiatives: Initiatives Completed On-Going 2020 . Centralization of operational areas  . Centralization of finance group  . Bank-wide organizational chart planning to gain efficiencies  . Core data processing decision (contract up in 2020)  . Continued hiring of bank talent in our growth markets  . Evaluation of new M&A opportunities  . Integration of Progressive Bank  . Noninterest income opportunities / acceleration  . SmartSpend project  16


 
Noteworthy Accomplishments in 2019 Announced the Acquisition Debuted on Fortune’s 100 Named “A Top Workplace” of Progressive Savings Bank Fastest-Growing Companies 3-Years Running 9 The proposed transaction will bolster The Fortune 100 Fastest-Growing For the third year in a row, SmartBank was SmartFinancial’s presence in Companies are publicly traded presented the Top Workplace award by the Tennessee and, based on market share companies ranked each year by Knoxville News Sentinel and Knox.biz. data as of June 30, 2019, revenue growth rate, EPS growth rate SmartFinancial will become the 7th and three-year annualized total return. largest community bank by deposits in Tennessee (pro forma), with total consolidated assets in excess of $2.7 billion. 17


 
Acquisition of Progressive Financial Group, Inc.


 
SMBK M&A Criteria SmartFinancial is committed to balancing organic growth with thoughtful acquisitions and will not make acquisitions simply for the sake of growth Impact SMBK Criteria Acquisition of Progressive TBV Earnback Period < 3 years  Meaningful earnings EPS Impact accretion in first full year of operations  Builds upon footprint in Market Density current and adjacent markets  Deposit Base Steady, low-cost funding  19


 
Overview of Progressive Financial Group Inc. Deposit Market Share in Counties of Operation Market Deposits Number Share in Market of Rank Institution (%) ($mm) Branches 1 B.P.C. Corp. 20.4 % $751 13 Company Name Progressive Financial Group Inc. 2 Regions Financial Corp. 15.0 553 7 Key Locations Cookeville, Crossville & Jamestown, TN 3 First National Bank of Tennessee 13.3 488 4 4 First Horizon National Corp. 8.6 315 2 CEO Ottis H. Phillips 5 Progressive Financial Group Inc. 7.2 264 6 Insiders & Related Parties Ownership > 60% 6 Educational Services of America Inc. 5.3 196 2 7 Jamestown Union Bancshares Inc. 4.4 161 2 Dollars in Thousands (Consolidated as of 09/30/19) 8 FB Financial Corp. 3.8 139 2 9 First Volunteer Corp. 3.6 134 4 Total Assets 296,065 10 American Bancshares Corp. 3.3 121 2 Net Loans 190,293 Total for Institutions in Market $3,684 60 Total Deposits 258,091 Tangible Common Equity 33,371 Net Income 2018 (1) 2,133 Progressive Company Highlights Net Income 2019 (1)(2) 1,216 MRQ Percentages . Founded in 1980 with deep existing ties to local markets Core ROAA (1) 0.72 Core ROAE (1) 7.08 Net Interest Margin 4.19 . Highly competitive market share in counties of Efficiency Ratio 86.7 operation NPAs/Assets 2.40 Leverage Ratio 10.20 Total Capital Ratio 14.57 . Diversified revenue streams through variety of Noninterest Bearing Deposits/ Deposits 24.08 business lines Source: S&P Global Market Intelligence Data as of 09/30/19; excludes impact of ownership of Upper Cumberland Bancshares Note: For a reconciliation of Non-GAAP financial measures to their most directly comparable GAAP measures, see the Appendix 20 (1) S-Corp profitability adjusted at 21% tax rate (2) 2019 YTD Net Income annualized


 
Bolstering Our Core Tennessee Market Tennessee Branch Footprint ClarksvilleClarksville JamestownJamestown JohnsonJohnson CityCity LebanonLebanon CookevilleCookeville JohnsonJohnson CityCity CookevilleCookeville 81 NashvilleNashville 40 KnoxvilleKnoxville 40 MurfreesboroMurfreesboro CrossvilleCrossville JacksonJackson JacksonJackson 65 75 TullahomaTullahoma 24 ClevelandCleveland ClevelandCleveland Progressive (6) MemphisMemphis ChattanoogaChattanooga SMBK (17) Tennessee Deposit Market Share (1) Pro Forma Company Overview (3) Community Market Deposits Number Assets $2.7 Billion Bank Share in Market of (1) Rank Rank Institution (%) ($mm) Branches Loans $2.0 Billion 1 Regions Financial Corp. 11.94 $16,546 218 2 First Horizon National Corp. 11.88 16,467 157 3 Truist Financial Corp. 10.47 14,507 147 Deposits $2.3 Billion 4 Pinnacle Financial Partners Inc. 6.32 8,766 48 5 Bank of America Corp. 5.60 7,756 58 1 6 FB Financial Corp. 3.16 4,382 67 Loans / Deposits 89.3% 7 U.S. Bancorp 2.50 3,471 91 2 8 Wilson Bank Holding Co. 1.68 2,332 28 3 9 Fifth Third Bancorp 1.65 2,282 35 10 Franklin Financial Network Inc. 1.50 2,074 15 . Provides entry into Crossville, TN and Cookeville, TN MSAs and a natural 11 Simmons First National Corp. 1.47 2,040 42 4 12 Reliant Bancorp Inc. 1.27 1,760 22 extension of branch network in Knoxville, TN MSA 13 Wells Fargo & Co. 1.27 1,754 19 5 14 CapStar Financial Holdings Inc. 1.25 1,737 13 6 15 Home Federal Bank of Tennessee 1.23 1,706 23 7 16 Pro Forma 1.21 1,685 23 . (2) 8 16 Educational Services of America Inc. 1.14 1,580 14 Ranked as a top 7 community bank in Tennessee on a pro forma basis 17 Renasant Corp. 1.08 1,502 20 9 18 First Citizens Bancshares Inc. 1.06 1,473 25 19 BancorpSouth Bank 1.03 1,429 27 10 20 SmartFinancial Inc. 1.02 1,421 17 . Advances strategy of building a Southeast regional community bank 62 81 Progressive Financial Group Inc. 0.19 264 6 Source: S&P Global Market Intelligence Deposit data as of 06/30/19 (1) Deposits capped at $1.0 billion per branch 21 (2) Community Bank defined as banks with total assets less than $15.0bn headquartered in Tennessee (3) Excludes purchase accounting adjustments


 
Appendix


 
Non-GAAP Reconciliations ($ in thousands) 4Q19 3Q19 2Q19 1Q19 4Q18 Net interest income - ex purchase acct. adj. Net interest income (GAAP) $ 21,104 $ 21,140 $ 20,802 $ 20,997 $ 21,447 Taxable equivalent adjustment 116 110 116 115 94 Net interest income TEY 21,220 21,250 20,918 21,112 21,541 Purchase accounting adjustments 1,375 1,246 1,374 1,717 2,343 Net interest income - ex purchase acct. adj. (Non-GAAP) $ 19,845 $ 20,004 $ 19,544 $ 19,395 $ 19,198 Operating Noninterest Income Noninterest income (GAAP) $ 2,840 $ 2,196 $ 8,416 $ 1,698 $ 1,680 Securities (gain) losses - (1) (33) - (2) ADECA termination proceeds (720) - - - - Merger termination fee - - (6,400) - - Operating noninterest income (Non-GAAP) $ 2,120 $ 2,195 $ 1,983 $ 1,698 $ 1,678 Operating Noninterest Expense Noninterest expense (GAAP) $ 16,052 $ 14,708 $ 16,809 $ 15,579 $ 15,661 Salaries - prior year adjustment (603) - - - - Merger related and restructuring charges (427) (73) (1,796) (923) (1,322) Other - prior year franchise tax true-up 312 - - - - Operating noninterest expense (Non-GAAP) $ 15,334 $ 14,635 $ 15,013 $ 14,656 $ 14,339 Tangible Common Equity Shareholders' equity (GAAP) $ 312,747 $ 306,040 $ 299,611 $ 290,481 $ 283,011 Less goodwill and other intangible assets 77,193 77,534 78,348 78,690 79,034 Tangible Common Equity (Non-GAAP) $ 235,555 $ 228,506 $ 221,263 $ 211,791 $ 203,977 Non-GAAP Return Ratios Net operating return on average assets (Non-GAAP)(1) 1.08% 1.02% 0.96% 0.98% 1.07% Return on average tangible common equity (Non-GAAP)(2) 11.6% 10.5% 16.8% 9.3% 13.1% Net operating return on average shareholder equity (Non-GAAP)(3) 8.3% 7.9% 7.6% 7.8% 8.7% Net operating return on average tangible common equity (Non-GAAP)(4) 11.1% 10.6% 10.3% 10.8% 12.0% (1) Net operating return on average assets (Non-GAAP) is the annualized net operating earnings (Non-GAAP) divided by average assets. (2) Return on average tangible common equity (Non-GAAP) is the annualized net income divided by average tangible common equity (Non-GAAP). (3) Net operating return on average shareholder equity (Non-GAAP) is the annualized net operating earnings (Non-GAAP) divided by average shareholder equity. 23 (4) Net operating return on average tangible common equity (Non-GAAP) is the annualized net operating earnings (Non-GAAP) divided by average tangible common equity (Non-GAAP). Note: “ADECA” represents a program administered by the Alabama Department of Economic and Community Affairs


 
Non-GAAP Reconciliations ($ in thousands, except per share data) 4Q19 3Q19 2Q19 1Q19 4Q18 Operating Earnings Net income (GAAP) $ 6,733 $ 5,963 $ 9,121 $ 4,731 $ 6,444 Noninterest income: Securities (gains) losses - (1) (33) - (2) ADECA termination proceeds (720) - - - - Merger termination fee - - (6,400) - - Noninterest expenses: Salaries - prior year adjustment 603 - - - - Merger related and restructuring expenses 427 73 1,796 923 1,322 Other - prior year franchise tax true-up (312) - - - - Income taxes: Tax benefit - prior year amended return (304) - - - - Tax benefit from director options - - - - (1,600) Income tax effect of adjustments 60 (19) 1,119 (145) (257) Net operating earnings (Non-GAAP) $ 6,487 $ 6,016 $ 5,603 $ 5,509 $ 5,907 Net operating earnings per common share: Basic $0.46 $0.43 $0.40 $0.40 $0.44 Diluted $0.46 $0.43 $0.40 $0.39 $0.43 Operating Efficiency Ratio Efficiency ratio (GAAP) 67.0% 63.0% 57.5% 68.7% 67.7% Adjustment for taxable equivalent yields (0.45%) (0.37%) (0.50%) (0.49%) (0.45%) Adjustment for securities gains (losses) - - 0.14% - 0.01% Adjustment for merger expenses (1.64%) (0.24%) 8.39% (3.91%) (5.55%) Operating efficiency ratio (Non-GAAP) 65.0% 62.4% 65.6% 64.3% 61.7% Note: “ADECA” represents a program administered by the Alabama Department of Economic and Community Affairs 24


 
Investor Contacts Billy Carroll Miller Welborn President & CEO Chairman (865) 868-0613 (423) 385-3067 [email protected] [email protected] SmartFinancial, Inc. 5401 Kingston Pike, Suite 600 Knoxville, TN 37919 25


 


 
(Back To Top)

Section 3: EX-99..1 (EXHIBIT 99..1)

Exhibit


Exhibit 99.1
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4Q 2019
  
SmartFinancial Announces Results for the Fourth Quarter 2019

KNOXVILLE, TN - January 21, 2020 - SmartFinancial, Inc. ("SmartFinancial" or the "Company"; NASDAQ: SMBK), today announced net income of $6.7 million, or $0.48 per diluted common share, for the fourth quarter of 2019, compared to net income of $6.0 million, or $0.42 per diluted common share, for the third quarter of 2019. Net operating earnings (Non-GAAP), which excludes securities gains, merger related and restructuring expenses and non-operating items, totaled $6.5 million, or $0.46 per diluted common share, in the fourth quarter of 2019, compared to $6.0 million, or $0.43 per diluted common share, in the third quarter of 2019.

For the year ending December 31, 2019, net income is $26.5 million, or $1.89 per diluted common share, compared to net income of $18.1 million, or $1.45 per diluted common share, for the year ending December 31, 2018. Net operating earnings (Non-GAAP), which excludes securities gains, merger related and restructuring expenses and non-operating items, totaled $23.6 million, or $1.68 per diluted common share, for the year ending December 31, 2019 compared to $19.5 million, or $1.56 per diluted common share, for the year ending December 31, 2018.

Highlights for Fourth Quarter of 2019

Return on average assets of 1.12% and net operating annualized return on average assets (Non-GAAP) of 1.08%
Asset quality remains outstanding with nonperforming assets to total assets of 0.21%
Loan growth of $32.7 million, or 7.0% annualized
Tangible book value (Non-GAAP) per share of $16.82, a 14.9% year-over-year increase
Announced the planned acquisition of Progressive Financial Group, Inc. ("PFG")
Initiation of a quarterly dividend


Billy Carroll, President & CEO, stated: “We posted a solid quarter and closed the books on another successful year where we made a number of outstanding foundational strides.  Our team continues to focus on steady growth of our performance metrics and we remain bullish on our opportunities to move the company forward and continuing growth of shareholder value.”

SmartFinancial's Chairman, Miller Welborn, concluded: “The consistency we are beginning to show in all areas of our company, especially our financial metrics, is very exciting to me. Our team continues to improve their execution of our strategy while maintaining a laser focus on growing long term shareholder value.”

Net Interest Income and Net Interest Margin

Net interest income was $21.1 million for each of the fourth and third quarters of 2019 and $21.4 million for the fourth quarter of 2018. The tax equivalent net interest margin was 3.84% for the fourth quarter of 2019 compared to 3.91% for the third quarter of 2019. The tax equivalent average yield on interest-earning assets was 4.92% for the fourth quarter of 2019, a decrease from 5.05% for the third quarter of 2019. The yield on interest-bearing liabilities decreased to 1.39% for the fourth quarter of 2019 from 1.47% for the third quarter of 2019.
The yield on average loans was 5.36% for the fourth quarter of 2019 compared to 5.48% for the third quarter of 2019. The decrease in yield on average loans from the third to fourth quarters of 2019 was primarily due to the impact of three Federal rate decreases over these two quarters which effected the repricing of variable rate loans and new loan production. During the fourth quarter of 2019, increased discount accretion was recorded on acquired loans (29 basis points in the fourth quarter of 2019 versus 26 basis points in the third quarter of 2019) with loan fees remaining stable quarter over quarter. For the fourth quarter of 2019, the yield on average loans, excluding accretion, was 5.07%, a decrease of 15 basis points from the 5.22% reported in the third quarter of

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2019. The impact of the acquired loan discount accretion on the tax equivalent net interest margin was 25 basis points for the fourth quarter of 2019 and 23 basis points for the third quarter of 2019.
The cost of average interest-bearing deposits was 1.29% for the fourth quarter of 2019 compared to 1.37% for the third quarter of 2019. The overall decrease of eight basis points in average interest-bearing deposits from the third to fourth quarter of 2019 was driven primarily by the three Federal rate decreases during the third and fourth quarters of 2019, creating a reduction of interest cost for all deposit classifications.
Provision for Loan Loss and Credit Quality

Provision for loan losses was $685 thousand in the fourth quarter of 2019, compared to $724 thousand in the third quarter of 2019 and $1.3 million in the fourth quarter of 2018. The allowance for loan losses was $10.2 million, or 0.54% of total loans, as of December 31, 2019, compared to $9.8 million, or 0.53% of total loans, as of September 30, 2019. The increase in allowance for loan losses to total loans was due primarily to the increase in the loan originations and, to lesser extent, the reduction of acquired loan balances.
Nonperforming loans as a percentage of total loans was 0.18% as of December 31, 2019, an increase of one basis point from the 0.17% reported in the third quarter of 2019. Total nonperforming assets (which include nonaccrual loans, loans past due 90 days or more and still accruing, and other real estate owned) as a percentage of total assets was 0.21% as of December 31, 2019 as compared to 0.20% as of September 30, 2019. 
Noninterest Income

Noninterest income was $2.8 million for the fourth quarter of 2019 compared to $2.2 million for the third quarter of 2019. The increase of $644 thousand from the third quarter 2019 to the fourth quarter 2019 was primarily because of funds received from the Alabama Department of Economic and Community Affairs ("ADECA"). ADECA was a program that guaranteed 50% of a loans obligation for loan's approved and originated through the program. In September 2019, the ADECA program was dissolved and in October 2019 total proceeds of $1.2 million was received, of which $720 thousand was recorded as noninterest income, and the remainder of the proceeds were held in reserve for potential future losses on specific identified loans that were covered in the program.

Noninterest Expense

Noninterest expense was $16.1 million for the fourth quarter of 2019, an increase of $1.4 million, compared to $14.7 million for the third quarter of 2019. During the fourth quarter of 2019, the primary components of the increase in noninterest expense were as follows:
Increase of $1.2 million in salaries and employees benefits, which consisted of a $603 thousand prior year adjustment, acquired SERP adjustment, year-end employee incentive accrual adjustments, and from increased hiring of associates;
Increase of $219 thousand in FDIC insurance due to a credit reported during the third quarter of 2019, and no expense recorded during the fourth quarter of 2019;
Increase of $257 thousand in data processing expenses, primarily from core processor credits that were utilized during the third quarter of 2019;
Increase of $354 thousand in merger related and restructuring expenses relating to the Progressive Financial Group Inc. acquisition; and
Decrease of $644 thousand in other expenses, which consisted of a benefit of $312 thousand relating to a prior year adjustment to franchise taxes from the 2018 income tax return true-up, and a current period benefit of $468 thousand relating to excess tax credits applied to franchise taxes (See Income Tax Expense below).

Income Tax Expense

Income tax expense was $473 thousand for the fourth quarter of 2019, a decrease of $1.5 million, compared to $1.9 million for the third quarter of 2019. During the fourth quarter of 2019, the primary components of the decrease in income tax expense were as follows:
Tax benefit of $304 thousand relating to a prior year (2017) amended Federal tax return;
Adjustments relating to the true-up of 2018 Federal Tax return; and
Tax benefit of $1.1 million income tax benefit associated with a program the State of Tennessee manages for Community Investment loans.  The Bank strategically originated loans in this program to reduce its 2019 tax liability.  The benefit received from the loans approved under this program was first applied to the current year Tennessee income tax liability, and the excess benefit over the current tax liability was applied directly to the Company’s Tennessee franchise tax liability.

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The amount of the benefit received from this opportunity totaled $1.6 million, with a benefit of $1.1 million applied to income tax liability and the excess benefit of $468 thousand applied to franchise tax (as mentioned above in Noninterest Expense).

The overall effective tax rate was 6.6% for the fourth quarter of 2019 compared to 24.6% for the third quarter of 2019.
Balance Sheet Trends

Total assets at December 31, 2019 were $2.45 billion compared with $2.27 billion at December 31, 2018. The year-over-year increase of $174.7 million is primarily from continued loan growth of $122.1 million.

Total liabilities increased to $2.14 billion at December 31, 2019 from $2.00 billion at December 31, 2018. The year-over-year increase of $145.0 million was primarily from the increase of total deposits of $125.3 million and FHLB and other borrowings of $14.2 million.

Shareholders' equity at December 31, 2019 totaled $312.7 million, an increase of $29.7 million, from December 31, 2018. The increase in shareholders' equity was primarily from net income of $26.5 million for the year 2019. Tangible book value per share (Non-GAAP) was $16.82 at December 31, 2019, an increase from $14.64 at December 31, 2018. Tangible common equity (Non-GAAP) as a percentage of tangible assets (Non-GAAP) was 9.93% at December 31, 2019, compared with 9.29% at December 31, 2018.

Conference Call Information

SmartFinancial will issue its earnings release for the fourth quarter of 2019 on Tuesday, January 21, 2020, and will host a conference call on Wednesday, January 22, 2020 at 10:00 a.m. ET. To access this interactive teleconference, dial (888) 317-6003 or (412) 317-6061 and enter the confirmation number, 1935532. A replay of the conference call will be available through January 22, 2021, by dialing (877) 344-7529 or (412) 317-0088 and entering the confirmation number, 10138335. Conference call materials (earnings release & conference call presentation) will be published on the company’s webpage located at http://www.smartfinancialinc.com/CorporateProfile ), at 9:00 am ET prior to the conference call.

About SmartFinancial, Inc.

SmartFinancial, Inc., based in Knoxville, Tennessee, is the bank holding company for SmartBank. SmartBank is a full-service commercial bank founded in 2007, with 29 branches across Tennessee, Alabama, and the Florida Panhandle. Recruiting the best people, delivering exceptional client service, strategic branching, and a disciplined approach to lending have contributed to SmartBank’s success. More information about SmartFinancial can be found on its website: www.smartfinancialinc.com.

Source
SmartFinancial, Inc.
 
Investor Contacts
Billy Carroll                        Ron Gorczynski
President & CEO                        Executive Vice President, Chief Financial Officer
(865) 868-0613 [email protected]        (865) 437-5724 [email protected]
 
Media Contact
Kelley Fowler
Senior Vice President, Public Relations & Marketing
(865) 868-0611    [email protected]












 

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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) net operating earnings, (ii) net operating return on average assets, (iii) net operating return on average shareholder equity, (iv) return on average tangible common equity, (v) net operating return on average tangible common equity, (vi) operating efficiency ratio; (vii) tangible common equity; (viii) average tangible common equity; (ix) tangible book value; and ratios derived therefrom, in its analysis of the company's performance. Net operating earnings excludes the following from net income: securities gains and losses, merger termination fee of $6.4 million in the second quarter of 2019, merger related and restructuring expenses, the effect of the December 2017 tax law change on deferred tax assets, tax benefit from director options previously exercised, and the income tax effect of adjustments. Net operating return on average equity is the annualized net operating earnings divided by average assets. Net operating return on average equity is the annualized net operating earnings divided by average equity. Return on average tangible common equity is the annualized net income divided by average tangible common equity. Net operating return on average tangible common equity is the annualized net operating earnings 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 excludes goodwill and other intangible assets. Tangible book value excludes intangible assets and goodwill. 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.



Forward-Looking Statements

This news release 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. These statements 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 related to the termination of our agreement and plan of merger with Entegra Financial Corp. (the “Entegra Merger Agreement”) or the abandonment of the transactions that were contemplated by the Entegra Merger Agreement; (2) reputational risk resulting from the termination of the Entegra Merger Agreement; (3) potential changes to, or the risk that we may not be able to execute on, our business strategy as a result of the termination of the Entegra Merger Agreement; (4) the risk that cost savings and revenue synergies from recently completed acquisitions may not be realized or may take longer than anticipated to realize; (5) disruption from recently completed acquisitions with customer, supplier, employee, or other business relationships; (6) our ability to successfully integrate the businesses acquired as part of previous acquisitions with the business of SmartBank; (7) risks related to the proposed acquisition of PFG, including the risk that the proposed acquisition does not close when expected or at all because conditions to closing are not satisfied on a timely basis or at all, or the terms of the proposed transaction need to be modified to satisfy such conditions; (8) the risk that the anticipated benefits from the proposed acquisition of PFG may not be realized in the time frame anticipated; (9) changes in management’s plans for the future; (10) prevailing, or changes in, economic or political conditions, particularly in our market areas; (11) credit risk associated with our lending activities; (12) changes in interest rates, loan demand, real estate values, or competition; (13) changes in accounting principles, policies, or guidelines; (14) changes in applicable laws, rules, or regulations; and (15) 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.






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SmartFinancial, Inc. and Subsidiary
 
 
 
 
 
 
 
 
Condensed Consolidated Financial Information - (unaudited)
 
 
 
 
 
 
 
 
(dollars in thousands except share and per share data)
 
 
 
 
 
 
 
 
 
 
As of and for The Three Months Ended
 
Twelve Months Ended
 
 
Dec
 
Sep
 
Jun
 
Mar
 
Dec
 
Dec
 
Dec
 
 
2019
 
2019
 
2019
 
2019
 
2018
 
2019
 
2018
Selected Performance Ratios (Annualized):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Return on average assets
 
1.12
%
 
1.01
%
 
1.56
%
 
0.84
%
 
1.17
%
 
1.13
%
 
0.92
%
Return on average shareholders' equity
 
8.65
%
 
7.80
%
 
12.34
%
 
6.71
%
 
9.44
%
 
8.89
%
 
7.47
%
Return on average tangible common equity (Non-GAAP)¹
 
11.55
%
 
10.52
%
 
16.78
%
 
9.26
%
 
13.09
%
 
12.04
%
 
10.09
%
Noninterest income / average assets
 
0.47
%
 
0.37
%
 
1.44
%
 
0.30
%
 
0.31
%
 
0.65
%
 
0.34
%
Noninterest expense / average assets
 
2.68
%
 
2.48
%
 
2.88
%
 
2.77
%
 
2.84
%
 
2.70
%
 
3.00
%
Efficiency ratio
 
67.04
%
 
63.03
%
 
57.53
%
 
68.65
%
 
67.71
%
 
63.66
%
 
70.84
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Selected Performance Ratios (Annualized):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net operating return on average assets (Non-GAAP)¹
 
1.08
%
 
1.02
%
 
0.96
%
 
0.98
%
 
1.07
%
 
1.01
%
 
0.99
%
Net operating return on average shareholders' equity (Non-GAAP)¹
 
8.34
%
 
7.87
%
 
7.58
%
 
7.81
%
 
8.65
%
 
7.91
%
 
8.05
%
Net operating return on average tangible common equity (Non-GAAP)¹
 
11.12
%
 
10.61
%
 
10.31
%
 
10.79
%
 
12.00
%
 
10.71
%
 
10.88
%
Operating efficiency ratio (Non-GAAP)¹
 
64.95
%
 
62.42
%
 
65.56
%
 
64.25
%
 
61.72
%
 
64.29
%
 
66.15
%
Operating noninterest income / average assets (Non-GAAP)
 
0.35
%
 
0.37
%
 
0.34
%
 
0.33
%
 
0.32
%
 
0.35
%
 
0.36
%
Operating noninterest expense / average assets (Non-GAAP)
 
2.56
%
 
2.47
%
 
2.57
%
 
2.60
%
 
2.76
%
 
2.55
%
 
2.84
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Selected Interest Rates and Yields:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Yield on loans
 
5.36
%
 
5.48
%
 
5.53
%
 
5.62
%
 
5.81
%
 
5.49
%
 
5.72
%
Yield on earning assets, FTE
 
4.92
%
 
5.05
%
 
5.17
%
 
5.25
%
 
5.36
%
 
5.10
%
 
5.32
%
Cost of interest-bearing deposits
 
1.29
%
 
1.37
%
 
1.42
%
 
1.32
%
 
1.21
%
 
1.35
%
 
1.04
%
Cost of total deposits
 
1.06
%
 
1.13
%
 
1.18
%
 
1.10
%
 
1.00
%
 
1.12
%
 
0.86
%
Cost of interest-bearing liabilities
 
1.39
%
 
1.47
%
 
1.54
%
 
1.45
%
 
1.33
%
 
1.46
%
 
1.10
%
Net interest margin, FTE
 
3.84
%
 
3.91
%
 
3.94
%
 
4.10
%
 
4.28
%
 
3.95
%
 
4.43
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Per Common Share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, basic
 
$
0.48

 
$
0.43

 
$
0.65

 
$
0.34

 
$
0.48

 
$
1.90

 
$
1.46

Net income, diluted
 
0.48

 
0.42

 
0.65

 
0.34

 
0.47

 
1.89

 
1.45

Net operating earnings, basic (Non-GAAP)¹
 
0.46

 
0.43

 
0.40

 
0.40

 
0.44

 
1.69

 
1.57

Net operating earnings, diluted (Non-GAAP)¹
 
0.46

 
0.43

 
0.40

 
0.39

 
0.43

 
1.68

 
1.56

Book value
 
22.33

 
21.93

 
21.47

 
20.82

 
20.31

 
22.33

 
20.31

Tangible book value (Non-GAAP)¹
 
16.82

 
16.37

 
15.86

 
15.18

 
14.64

 
16.82

 
14.64

Common shares outstanding
 
14,008,233

 
13,957,973

 
13,953,209

 
13,951,590

 
13,933,504

 
14,008,233

 
13,933,504

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
¹See reconciliation of Non-GAAP measures
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SmartFinancial, Inc. and Subsidiary
 
 
 
 
 
 
 
 
Condensed Consolidated Financial Information - (unaudited)
 
 
 
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
As of and for The Three Months Ended
 
 
 
 
 
 
Dec
 
Sep
 
Jun
 
Mar
 
Dec
 
 
 
 
 
 
2019
 
2019
 
2019
 
2019
 
2018
 
 
 
 
Composition of Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
owner occupied
 
$
429,269

 
$
422,363

 
$
415,502

 
$
416,152

 
$
372,030

 
 
 
 
non-owner occupied
 
476,038

 
468,099

 
464,160

 
472,790

 
487,997

 
 
 
 
Commercial real estate, total
 
905,307

 
890,462

 
879,662

 
888,942

 
860,027

 
 
 
 
Commercial & industrial
 
337,075

 
341,207

 
334,258

 
341,471

 
308,254

 
 
 
 
Construction & land development
 
227,626

 
219,751

 
204,731

 
187,009

 
187,895

 
 
 
 
Consumer real estate
 
423,337

 
405,531

 
406,357

 
410,981

 
407,254

 
 
 
 
Consumer and other
 
9,903

 
10,796

 
11,981

 
12,166

 
13,809

 
 
 
 
Total loans
 
$
1,903,248

 
$
1,867,747

 
$
1,836,989

 
$
1,840,569

 
$
1,777,239

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset Quality and Additional Loan Data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nonperforming loans
 
$
3,350

 
$
3,166

 
$
2,838

 
$
2,282

 
$
3,280

 
 
 
 
Other real estate owned
 
1,757

 
1,561

 
1,814

 
2,066

 
2,495

 
 
 
 
Total nonperforming assets
 
$
5,107

 
$
4,727

 
$
4,652

 
$
4,348

 
$
5,775

 
 
 
 
Restructured loans not included in nonperforming loans
 
$
61

 
$
61

 
$
62

 
$
62

 
$
116

 
 
 
 
Net charge-offs (recoveries) to average loans (annualized)
 
0.01
%
 
0.01
%
 
%
 
0.08
%
 
0.04
%
 
 
 
 
Allowance for loan losses to loans
 
0.54
%
 
0.53
%
 
0.50
%
 
0.47
%
 
0.47
%
 
 
 
 
Nonperforming loans to total loans, gross
 
0.18
%
 
0.17
%
 
0.15
%
 
0.12
%
 
0.18
%
 
 
 
 
Nonperforming assets to total assets
 
0.21
%
 
0.20
%
 
0.19
%
 
0.18
%
 
0.25
%
 
 
 
 
Purchase accounting discount balance
 
$
15,348

 
$
16,784

 
$
18,571

 
$
19,954

 
$
21,528

 
 
 
 
Accretion income on acquired loans
 
1,375

 
1,246

 
1,374

 
1,717

 
2,343

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Capital Ratios:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity to Assets
 
12.77
%
 
12.80
%
 
12.53
%
 
12.34
%
 
12.44
%
 
 
 
 
Tangible common equity to tangible assets (Non-GAAP)3
 
9.93
%
 
9.88
%
 
9.57
%
 
9.31
%
 
9.29
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SmartFinancial, Inc.1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tier 1 leverage
 
10.34
%
 
10.02
%
 
9.92
%
 
9.29
%
 
9.47
%
 
 
 
 
Common equity Tier 1
 
11.61
%
 
11.54
%
 
11.21
%
 
10.61
%
 
10.81
%
 
 
 
 
Tier 1 capital
 
11.61
%
 
11.54
%
 
11.21
%
 
10.61
%
 
10.81
%
 
 
 
 
Total capital
 
14.02
%
 
13.98
%
 
13.65
%
 
13.01
%
 
13.29
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SmartBank
 
Estimated2

 
 
 
 
 
 
 
 
 
 
 
 
Tier 1 leverage
 
11.41
%
 
11.22
%
 
10.92
%
 
10.96
%
 
11.17
%
 
 
 
 
Common equity Tier 1
 
12.81
%
 
12.71
%
 
12.37
%
 
12.18
%
 
12.31
%
 
 
 
 
Tier 1 risk-based capital
 
12.81
%
 
12.71
%
 
12.37
%
 
12.18
%
 
12.31
%
 
 
 
 
Total risk-based capital
 
13.31
%
 
13.19
%
 
12.82
%
 
12.62
%
 
12.74
%
 
 
 
 

1All periods presented are estimated.
2 Current period capital ratios are estimated as of the date of this earnings release.
3Total common equity less intangibles divided by total assets less intangibles.





SmartFinancial, Inc. and Subsidiary
 
 
 
 
 
 
 
 
Condensed Consolidated Financial Information - (unaudited)
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Ending Balances
 
 
Dec
 
Sep
 
Jun
 
Mar
 
Dec
 
 
2019
 
2019
 
2019
 
2019
 
2018
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
 
$
183,971

 
$
170,934

 
$
199,534

 
$
132,994

 
$
115,822

Securities available-for-sale, at fair value
 
178,348

 
171,507

 
174,114

 
198,273

 
201,688

Other investments
 
12,913

 
12,913

 
12,905

 
12,398

 
11,499

Loans held for sale
 
5,856

 
3,068

 
4,087

 
2,103

 
1,979

Loans
 
1,897,392

 
1,864,679

 
1,832,902

 
1,838,466

 
1,775,260

 Less: Allowance for loan losses
 
(10,243
)
 
(9,792
)
 
(9,097
)
 
(8,704
)
 
(8,275
)
 Loans, net
 
1,887,149

 
1,854,887

 
1,823,805

 
1,829,762

 
1,766,985

Premises and equipment, net
 
59,433

 
58,386

 
56,589

 
56,583

 
56,012

Other real estate owned
 
1,757

 
1,561

 
1,814

 
2,066

 
2,495

Goodwill and core deposit intangibles, net
 
77,193

 
77,534

 
78,348

 
78,690

 
79,034

Bank owned life insurance
 
24,949

 
24,796

 
24,695

 
24,540

 
24,381

Other assets
 
17,554

 
14,899

 
15,366

 
16,572

 
14,514

Total assets
 
$
2,449,123

 
$
2,390,485

 
$
2,391,257

 
$
2,353,981

 
$
2,274,409

 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 

 
 

 
 

 
 

 
 

Deposits:
 
 
 
 
 
 
 
 
 
 
  Noninterest-bearing demand
 
$
364,155

 
$
365,024

 
$
357,220

 
$
329,095

 
$
319,861

  Interest-bearing demand
 
380,234

 
351,474

 
333,705

 
331,629

 
311,482

  Money market and savings
 
623,284

 
634,934

 
648,132

 
698,431

 
641,945

  Time deposits
 
679,541

 
646,641

 
673,243

 
635,175

 
648,676

  Total deposits
 
2,047,214

 
1,998,073

 
2,012,300

 
1,994,330

 
1,921,964

Securities sold under agreements to repurchase
 
6,184

 
4,368

 
8,219

 
7,070

 
11,756

FHLB & other borrowings
 
25,439

 
25,460

 
15,460

 
8,605

 
11,243

Subordinated debt
 
39,261

 
39,240

 
39,219

 
39,198

 
39,177

Other liabilities
 
18,278

 
17,304

 
16,448

 
14,297

 
7,258

Total liabilities
 
2,136,376

 
2,084,445

 
2,091,646

 
2,063,500

 
1,991,398

Shareholders' Equity:
 
 
 
 
 
 
 
 
 
 
Common stock
 
14,008

 
13,958

 
13,953

 
13,952

 
13,933

Additional paid-in capital
 
232,732

 
232,573

 
232,386

 
232,241

 
231,852

Retained earnings
 
65,839

 
59,806

 
53,843

 
44,722

 
39,991

Accumulated other comprehensive income (loss)
 
168

 
(297
)
 
(571
)
 
(434
)
 
(2,765
)
Total shareholders' equity
 
312,747

 
306,040

 
299,611

 
290,481

 
283,011

Total liabilities & shareholders' equity
 
$
2,449,123

 
$
2,390,485

 
$
2,391,257

 
$
2,353,981

 
$
2,274,409





SmartFinancial, Inc. and Subsidiary
 
 
 
 
 
 
 
 
Condensed Consolidated Financial Information - (unaudited)
 
 
 
 
 
 
 
 
(dollars in thousands, except share and per share data)
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Twelve Months Ended
 
 
Dec
 
Sep
 
Jun
 
Mar
 
Dec
 
Dec
 
Dec
 
 
2019
 
2019
 
2019
 
2019
 
2018
 
2019
 
2018
Interest income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans, including fees
 
$
25,398

 
$
25,515

 
$
25,278

 
$
24,975

 
$
25,018

 
$
101,002

 
$
86,469

Securities available-for-sale:
 
 
 

 

 

 

 
 
 
 
 Taxable
 
698

 
748

 
871

 
971

 
900

 
3,289

 
3,512

 Tax-exempt
 
345

 
338

 
411

 
424

 
347

 
1,518

 
587

Federal funds sold and other earning assets
 
587

 
743

 
743

 
573

 
506

 
2,646

 
1,642

Total interest income
 
27,028

 
27,344

 
27,303

 
26,943

 
26,771

 
108,455

 
92,210

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deposits
 
5,271

 
5,605

 
5,788

 
5,251

 
4,680

 
21,915

 
14,288

Securities sold under agreements to repurchase
 
5

 
5

 
6

 
8

 
9

 
23

 
45

FHLB advances and other borrowings
 
65

 
10

 
117

 
103

 
51

 
296

 
630

Subordinated debt
 
584

 
584

 
590

 
584

 
584

 
2,341

 
603

Total interest expense
 
5,924

 
6,204

 
6,501

 
5,946

 
5,324

 
24,575

 
15,566

Net interest income
 
21,104

 
21,140

 
20,802

 
20,997

 
21,447

 
83,880

 
76,644

Provision for loan losses
 
685

 
724

 
393

 
797

 
1,329

 
2,599

 
2,936

Net interest income after provision for loan losses
 
20,419

 
20,416

 
20,409

 
20,200

 
20,118

 
81,281

 
73,708

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Noninterest income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service charges on deposit accounts
 
773

 
767

 
707

 
654

 
663

 
2,902

 
2,416

Gain on sale of securities, net
 

 
1

 
33

 

 
2

 
34

 
1

Mortgage banking
 
374

 
518

 
392

 
282

 
251

 
1,566

 
1,433

Interchange and debit card transaction fees
 
163

 
148

 
143

 
175

 
162

 
628

 
573

Merger termination fee
 

 

 
6,400

 

 

 
6,400

 

Other
 
1,530

 
762

 
741

 
587

 
602

 
3,785

 
2,161

Total noninterest income
 
2,840

 
2,196

 
8,416

 
1,698

 
1,680

 
15,315

 
6,584

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Noninterest expense:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Salaries and employee benefits
 
10,278

 
9,072

 
8,984

 
8,398

 
7,871

 
36,635

 
30,630

Occupancy and equipment
 
1,749

 
1,635

 
1,658

 
1,640

 
1,610

 
6,716

 
6,303

FDIC insurance (credit)
 

 
(219
)
 
180

 
179

 
209

 
140

 
786

Other real estate and loan related expense
 
253

 
335

 
242

 
490

 
738

 
1,320

 
2,913

Advertising and marketing
 
166

 
263

 
259

 
295

 
246

 
983

 
873

Data processing
 
530

 
273

 
577

 
615

 
372

 
1,995

 
1,906

Professional services
 
652

 
573

 
489

 
662

 
707

 
2,375

 
2,694

Amortization of intangibles
 
340

 
341

 
342

 
344

 
312

 
1,368

 
976

Software as service contracts
 
500

 
560

 
568

 
567

 
577

 
2,195

 
2,054

Merger related and restructuring expenses
 
427

 
73

 
1,796

 
923

 
1,322

 
3,219

 
3,781

Other
 
1,157

 
1,802

 
1,714

 
1,466

 
1,697

 
6,205

 
6,041

Total noninterest expense
 
16,052

 
14,708

 
16,809

 
15,579

 
15,661

 
63,151

 
58,957

Income before income taxes
 
7,206

 
7,904

 
12,016

 
6,319

 
6,137

 
33,445

 
21,335

Income tax expense
 
473

 
1,941

 
2,895

 
1,588

 
(307
)
 
6,897

 
3,233

Net income
 
$
6,733

 
$
5,963

 
$
9,121

 
$
4,731

 
$
6,444

 
$
26,548

 
$
18,102

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings Per Common Share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
$
0.48

 
$
0.43

 
$
0.65

 
$
0.34

 
$
0.48

 
$
1.90

 
$
1.46

Diluted
 
$
0.48

 
$
0.42

 
$
0.65

 
$
0.34

 
$
0.47

 
$
1.89

 
$
1.45

Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
13,965,877

 
13,955,859

 
13,951,643

 
13,942,016

 
13,534,806

 
13,953,497

 
12,423,618

Diluted
 
14,066,269

 
14,053,432

 
14,046,500

 
14,018,163

 
13,616,616

 
14,046,366

 
12,517,640





SmartFinancial, Inc. and Subsidiary
 
 
 
 
 
 
 
 
 
 
Condensed Consolidated Financial Information - (unaudited)
 
 
 
 
 
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
YIELD ANALYSIS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
 
December 31, 2019
 
September 30, 2019
 
December 31, 2018
 
 
Average
 
 
 
Yield/
 
Average
 
 
 
Yield/
 
Average
 
 
 
Yield/
 
 
Balance
 
Interest1
 
Cost1
 
Balance
 
Interest1
 
Cost1
 
Balance
 
Interest1
 
Cost1
Assets:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Loans, including fees
 
$
1,881,501

 
$
25,398

 
5.36
%
 
$
1,846,196

 
$
25,515

 
5.48
%
 
$
1,708,916

 
$
25,019

 
5.81
%
Taxable securities
 
116,278

 
698

 
2.38
%
 
118,955

 
748

 
2.49
%
 
171,133

 
900

 
2.09
%
Tax-exempt securities
 
59,048

 
461

 
3.09
%
 
56,598

 
448

 
3.14
%
 
43,177

 
440

 
4.04
%
Federal funds sold and other earning assets
 
133,681

 
587

 
1.74
%
 
135,444

 
743

 
2.18
%
 
67,036

 
506

 
2.99
%
Total interest-earning assets
 
2,190,508

 
27,144

 
4.92
%
 
2,157,193

 
27,454

 
5.05
%
 
1,990,262

 
26,865

 
5.36
%
Noninterest-earning assets
 
190,083

 
 

 
 

 
191,940

 
 
 
 
 
193,952

 
 

 
 

Total assets
 
$
2,380,591

 
 

 
 

 
$
2,349,133

 
 
 
 
 
$
2,184,214

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders’ Equity:
 
 

 
 

 
 

 
 
 
 
 
 
 
 

 
 

 
 

Interest-bearing demand deposits
 
$
351,901

 
486

 
0.55
%
 
$
343,827

 
511

 
0.59
%
 
$
289,207

 
562

 
0.77
%
Money market and savings deposits
 
632,555

 
1,695

 
1.06
%
 
637,290

 
1,829

 
1.14
%
 
624,231

 
1,696

 
1.08
%
Time deposits
 
633,867

 
3,090

 
1.93
%
 
640,679

 
3,265

 
2.02
%
 
616,296

 
2,422

 
1.56
%
Total interest-bearing deposits
 
1,618,323

 
5,271

 
1.29
%
 
1,621,796

 
5,605

 
1.37
%
 
1,529,734

 
4,680

 
1.21
%
Securities sold under agreement to repurchase
 
5,321

 
5

 
0.35
%
 
6,490

 
5

 
0.31
%
 
10,661

 
9

 
0.33
%
Federal funds purchased and other borrowings
 
25,549

 
65

 
1.00
%
 
6,820