Toggle SGML Header (+)


Section 1: 8-K (8-K SMARTFINANCIAL 2ND QUARTER 2018 EARNINGS RELEASE)

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: July 24, 2018
 
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)
  
(865) 437-5700
(Registrant’s telephone number, including area code)
 
 
(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))





Item 2.02
Results of Operations and Financial Condition.
 
On July 24, 2018, SmartFinancial, Inc. issued a press release reporting earnings results for its second quarter ending June 30, 2018. The information included in the press release is considered to be “furnished” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). SmartFinancial will include final financial statements and additional analysis for the quarter ended June 30, 2018 as part of its quarterly report on Form 10-Q covering that period.

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 July 25, 2018. The slides are included as Exhibit 99.2 to this report and 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
Press release announcing second quarter 2018 financial results dated July 24, 2018

Second quarter 2018 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: July 24, 2018
 
 
/s/ William Y. Carroll, Jr.
 
William Y. Carroll, Jr.
 
President & Chief Executive Officer





EXHIBIT INDEX 

Exhibit No.
 
Description
 
 
 
 
Press release announcing second quarter 2018 financial results dated July 24, 2018

 
Second quarter 2018 investor presentation




(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit


Exhibit 99.1
394347583_image001rgba01.jpg
 
2Q 2018
  
SmartFinancial Announces Earnings with Second Quarter 2018 Net Income of $3.9 million
Net operating earnings (Non-GAAP) of $4.8 million for the quarter
 
Performance Highlights 

Return on average assets of 0.81 percent and net operating return on average assets (Non-GAAP) of 1.00 percent.
Net interest margin, taxable equivalent, of 4.57 percent, an increase of 0.42 percent from a year ago.
Asset quality improved with nonperforming assets to total assets decreasing to 0.25 percent.
Completed second acquisition in seven months, increasing assets to over $2.0 billion.

KNOXVILLE, TN - July 24, 2018 - SmartFinancial, Inc. ("SmartFinancial"; NASDAQ: SMBK), today announced net income of $3.9 million for the second quarter of 2018, compared to $1.6 million a year ago. Diluted net income per share was $0.32 for the second quarter of 2018, compared to $0.20 during the second quarter of 2017. Net operating earnings (Non-GAAP), which excludes securities gains and merger expenses, totaled $4.8 million in the second quarter of 2018 compared to $2.1 million in the second quarter of 2017.

Billy Carroll, President & CEO, stated: "I am pleased to report another solid quarter for our company.  We crossed over $2.0 billion in assets, continued our upward momentum in earnings per share and return on assets, and maintained an extremely healthy net interest margin, even with an uptick in deposit costs.  Our team has done a great job this year with the integration of Alabama-based Capstone in the first quarter, closing the acquisition of Tennessee Bancshares and begin planning of its integration in the second quarter, and announcing our planned Foothills Bancorp acquisition.  All of these accomplishments while organically growing and improving the core bank."
 
SmartFinancial's Chairman, Miller Welborn, concluded: “ I am excited about the continued progress that we have shown this past quarter. Our momentum is very positive in all areas of the bank. I am proud of the way we are executing on the recent acquisitions and our new markets are proving to be healthy.”
 
Second Quarter 2018 compared to First Quarter 2018

Net income of $3.9 million for the second quarter of 2018, compared to $3.4 million in the prior quarter. Diluted net income per share was $0.32 for the second quarter of 2018, compared to $0.30 during the first quarter of 2018. Net operating earnings (Non-GAAP), which excludes securities gains and merger expenses, totaled $4.8 million in the second quarter of 2018 compared to $3.8 million in the previous quarter.

Net interest income to average assets of 4.03 percent for the quarter increased from 3.93 percent in the first quarter of 2018. Net interest income totaled $19.5 million in the second quarter of 2018 compared to $16.8 million in the first quarter of 2018. Net interest margin, taxable equivalent, increased from 4.38 percent in the first quarter of 2018 to 4.57 percent in the second quarter of 2018 as a result of increases on the yields of the core loan portfolio, yields of the securities portfolio, and higher accretion income on acquired loans.
 
Provision for loan losses was $617 thousand in the second quarter of 2018, compared to $689 thousand in the first quarter of 2018. The decrease in provision for loan losses was due to slightly slower growth of the organic loan portfolio during the period. The allowance for loan losses and leases ("ALLL") was $7.1 million, or 0.45 percent of total loans as of June 30, 2018, compared to $6.5 million, or 0.47 percent of total loans, as of March 31, 2018.
 

394347583_image002rgba01.jpg



Nonperforming loans as a percentage of total loans was 0.11 percent as of June 30, 2018, which was a decrease from 0.14 percent in the prior quarter. Total nonperforming assets (which include nonaccrual loans, loans past due 90 days or more and still accruing, and foreclosed assets) as a percentage of total assets was 0.25 percent as of June 30, 2018, compared to 0.26 percent as of March 31, 2018. There were $20.7 million in discounts on $622.4 million of purchased loans as of June 30, 2018 compared to $16.3 million of discounts on $492.9 million of purchased loans as of March 31, 2018.
 
Noninterest income to average assets of 0.33 percent for the period decreased slightly from 0.34 percent in the first quarter of 2018. Noninterest income totaled $1.6 million in the second quarter of 2018, compared to $1.5 million in the first quarter of 2018.

Noninterest expense to average assets of 3.15 percent for the quarter increased from 3.09 percent in the first quarter of 2018. Noninterest expense totaled $15.3 million in the second quarter of 2018, an increase of $2.1 million from the first quarter of 2018, primarily due higher merger expenses and two months of salaries and employee benefits for associates added by the Tennessee Bancshares acquisition. Income tax expense was $1.3 million in the second quarter of 2018 compared to $0.9 million in the first quarter of 2018. The company's effective tax rate increased to 24.8 percent in the second quarter of 2018 compared to 21.6 percent in the first quarter of 2018, due to higher nondeductible merger expenses and a decrease in exercised options with associated tax benefits.

Second Quarter 2018 compared to Second Quarter 2017

Net income totaled $3.9 million in the second quarter of 2018, or $0.32 per diluted share, compared to $1.6 million, or $0.20 per diluted share, in the second quarter of 2017. Net operating earnings (Non-GAAP), which excludes securities gains and merger expenses, totaled $4.8 million in the second quarter of 2018 compared to $2.1 million in the second quarter of 2017.

Net interest income to average assets of 4.03 percent for the quarter increased from 3.81 percent in the second quarter of 2017 as the average earning asset balances and yields increased compared to the prior year. Net interest income totaled $19.5 million in the second quarter of 2018 compared to $10.2 million in the second quarter of 2017. Net interest income was positively impacted compared to the prior year due to increases in loan and securities balances and increases in the yields of the loan and securities portfolios. Net interest margin, taxable equivalent, increased from 4.15 percent in the second quarter of 2017 to 4.57 percent in the second quarter of 2018 as a result of increases on the yields of the core loan portfolio, yields on the securities portfolio, and higher accretion income on acquired loans.

Provision for loan losses was $617 thousand in the second quarter of 2018, compared to $298 thousand in the second quarter of 2017. The increase in provision for loan losses was due to faster growth of the organic loan portfolio during the period. The ALLL was $7.1 million, or 0.45 percent of total loans as of June 30, 2018, compared to $5.5 million, or 0.64 percent of total loans, as of June 30, 2017.
 
Nonperforming loans as a percentage of total loans was 0.11 percent as of June 30, 2018, a decrease from 0.13 percent in the prior year. Total nonperforming assets (which include nonaccrual loans, loans past due 90 days or more and still accruing, and foreclosed assets) as a percentage of total assets was 0.25 percent as of June 30, 2018, compared to 0.30 percent as of June 30, 2017.
 
Noninterest income to average assets of 0.33 percent for the quarter decreased from 0.47 percent in the second quarter of 2017. Noninterest income totaled $1.6 million in the second quarter of 2018, compared to $1.3 million in the second quarter of 2017.

Noninterest expense to average assets of 3.15 percent for the quarter decreased from 3.29 percent in the second quarter of 2017. Noninterest expense totaled $15.3 million in the second quarter of 2018, compared to $8.8 million in the second quarter of 2017. The increases in noninterest expense over the prior year were primarily due to the acquisitions of Capstone in the fourth quarter of 2017 and Tennessee Bancshares in the second quarter of 2018. The Company's effective tax rate was 24.8 percent in the second quarter of 2018 compared to 30.6 percent in the second quarter of 2017, primarily due to the decrease in the federal tax rate for 2018.

Conference Call Information

SmartFinancial plans to issue its earnings release for the second quarter of 2018 on Tuesday, July 24, 2018, and will host a conference call on Wednesday, July 25, at 10:00 a.m. ET. To access this interactive teleconference, dial (888) 317-6003 or (412) 317-6061 and enter the confirmation number, 5078284. A replay of the conference call will be available through July 25, 2019, by dialing (877) 344-7529 or (412) 317-0088 and entering the confirmation number, 10122430. Conference call materials (earnings release and 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 morning of the conference call.


394347583_image002rgba01.jpg



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 26 branches across Tennessee, Alabama, and 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 Administrative Officer
(865) 868-0613 billy.carroll@smartbank.com        (865) 437-5724 ron.gorczynski@smartbank.com
 
Media Contact
Kelley Fowler
Senior Vice President, Public Relations & Marketing
(865) 868-0611    kelley.fowler@smartbank.com
 
Non-GAAP Financial Matters
Statements included in this press release 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 available to common shareholders; (ii) operating efficiency ratio; and (iii) tangible common equity, in its analysis of the company's performance. Net operating earnings available to common shareholders excludes the following from net income available to common shareholders: securities gains and losses, merger conversion expenses, and the effect of the December, 2017 tax law change on deferred tax assets, and the income tax effect of adjustments. The operating efficiency ratio excludes securities gains and losses and merger expenses from the efficiency ratio. Tangible common equity excludes total preferred stock, preferred stock paid in capital, goodwill, and other intangible assets. Management believes that non-GAAP financial measures provide additional useful information that allows readers to evaluate the ongoing performance of the company and provide meaningful comparisons to its peers. 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.
 
Important Information for Shareholders
This press release shall not constitute an offer to sell, the solicitation of an offer to sell, or the solicitation of an offer to buy any securities or the solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. In connection with the proposed merger with Foothills Bancorp, Inc. (“Foothills Bancorp”), SmartFinancial will file a registration statement on Form S-4 with the Securities and Exchange Commission (the “SEC”), which will contain the proxy statement of Foothills Bancorp and a prospectus of SmartFinancial. Shareholders of Foothills Bancorp are encouraged to read the registration statement, including the proxy statement/prospectus that will be part of the registration statement, because it will contain important information about the proposed merger, Foothills Bancorp, and SmartFinancial. After the registration statement is filed with the SEC, the proxy statement/prospectus and other relevant documents will be mailed to Foothills Bancorp shareholders and will be available for free on the SEC’s website (www.sec.gov). The proxy statement/prospectus will also be made available for free by contacting Ron Gorczynski, SmartFinancial’s Chief Administrative Officer, at 865.437.5724 or Mark Loudermilk, the President and Chief Executive Officer of Foothills Bancorp, at 865.738.2230. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.

Forward-Looking Statements
Certain of the statements made in this press release may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements, including statements regarding the intent, belief, or current expectations of SmartFinancial’s management regarding the company’s strategic direction, prospects, or future results or the benefits of the proposed merger with Foothills Bancorp (the “Foothills merger”), are subject to numerous risks and uncertainties. Such risks and uncertainties include, among others, (1) the risk that the cost savings and revenue synergies anticipated in connection with the Foothills merger may not be realized or may take longer than anticipated to be realized, (2) disruption from the Foothills merger with customers, suppliers, or employee or other business relationships, (3) the occurrence of any event, change, or other circumstances that could give rise to the termination of the merger agreement with Foothills Bancorp, (4) the risk of successful integration of our business with that of Foothills Bancorp, (5) the failure of Foothills Bancorp’s shareholders to approve the merger agreement, (6) the amount of costs, fees, expenses, and charges related to the Foothills merger, (7) our ability to successfully integrate the businesses acquired as part of previous mergers with that of SmartBank, (8) reputational risk and the reaction of our customers and Foothills Bancorp’s customers to the Foothills merger, (9) the failure of the conditions to closing of the Foothills merger to be satisfied, (10) the risk that the integration of our merger partners’ businesses into our operations will be materially delayed or will be more costly or difficult than expected, (11) the possibility that the Foothills merger may be more expensive to complete than anticipated, including as a result of

394347583_image002rgba01.jpg



unexpected factors or events, (12) the dilution caused by SmartFinancial’s issuance of additional shares of its common stock in the Foothills merger, (13) changes in management’s plans for the future, (14) prevailing economic and political conditions, particularly in our market areas, (15) credit risk associated with our lending activities, (16) changes in interest rates, loan demand, real estate values, and competition, (17) changes in accounting principles, policies, or guidelines, (18) changes in applicable laws, rules, or regulations, and (19) other competitive, economic, political, and market factors affecting our business, operations, pricing, products, and services. Certain additional factors which could affect the forward-looking statements can be found in SmartFinancial’s 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 SEC and available on the SEC’s website (www.sec.gov). SmartFinancial disclaims any obligation to update or revise any forward-looking statements contained in this press release, which speak only as of the date hereof, whether as a result of new information, future events, or otherwise.



394347583_image002rgba01.jpg



SmartFinancial, Inc. and Subsidiary
 
 
 
 
Condensed Consolidated Financial Information (unaudited)
 
 
 
 
(In thousands except per share data)
 
 
 
 
 
 
As of and for the three months ending
 
 
June 30, 2018
 
March 31, 2018
 
December 31, 2017
 
September 30, 2017
 
June 30, 2017
Selected Performance Ratios (Annualized)
 
 
 
 
 
 
 
 
 
 
Return on average assets
 
0.81
%
 
0.80
%
 
0.01
 %
 
0.59
 %
 
0.61
 %
Net operating return on average assets (Non-GAAP)
 
1.00
%
 
0.89
%
 
0.99
 %
 
0.63
 %
 
0.61
 %
Return on average shareholder equity
 
6.76
%
 
6.25
%
 
0.08
 %
 
4.91
 %
 
4.95
 %
Net operating return on average shareholder equity (Non-GAAP)
 
8.33
%
 
6.97
%
 
7.98
 %
 
5.30
 %
 
4.91
 %
Net interest income / average assets
 
4.03
%
 
3.93
%
 
4.09
 %
 
3.81
 %
 
3.81
 %
Yield on Earning Assets
 
5.37
%
 
5.04
%
 
5.07
 %
 
4.69
 %
 
4.66
 %
Yield on earning assets, TE
 
5.38
%
 
5.05
%
 
5.09
 %
 
4.70
 %
 
4.66
 %
Cost of interest-bearing liabilities
 
1.00
%
 
0.82
%
 
0.70
 %
 
0.68
 %
 
0.65
 %
Net interest margin
 
4.56
%
 
4.37
%
 
4.51
 %
 
4.16
 %
 
4.14
 %
Net interest margin, TE
 
4.57
%
 
4.38
%
 
4.51
 %
 
4.17
 %
 
4.15
 %
Noninterest income / average assets
 
0.33
%
 
0.34
%
 
0.42
 %
 
0.43
 %
 
0.47
 %
Noninterest expense / average assets
 
3.15
%
 
3.09
%
 
3.35
 %
 
3.34
 %
 
3.29
 %
Efficiency ratio
 
72.33
%
 
72.38
%
 
74.26
 %
 
78.67
 %
 
76.77
 %
Operating efficiency ratio (Non-GAAP)
 
64.82
%
 
69.12
%
 
60.64
 %
 
76.12
 %
 
71.79
 %
Pre-tax pre-provision income / average assets
 
1.21
%
 
1.18
%
 
1.16
 %
 
0.90
 %
 
0.96
 %
 
 
 
 
 
 
 
 
 
 
 
Per Common Share
 
 
 
 
 
 
 
 
 
 
Net income, basic
 
$
0.32

 
$
0.30

 
$

 
$
0.20

 
$
0.20

Net income, diluted
 
0.32

 
0.30

 

 
0.20

 
0.20

Net operating earnings, basic (Non-GAAP)
 
0.40

 
0.35

 
0.35

 
0.22

 
0.25

Net operating earnings, diluted (Non-GAAP)
 
0.39

 
0.35

 
0.35

 
0.22

 
0.25

Book value as of
 
19.48

 
18.60

 
18.46

 
16.57

 
16.39

Tangible book value (Non-GAAP) as of
 
14.09

 
14.09

 
13.90

 
15.67

 
15.48

 
 
 
 
 
 
 
 
 
 
 
Common shares outstanding as of
 
12,705

 
11,234

 
11,153

 
8,243

 
8,219

 
 
 
 
 
 
 
 
 
 
 
Composition Of Loans
 
 
 
 
 
 
 
 
 
 
Real estate commercial
 
 
 
 
 
 
 
 
 
 
owner occupied
 
$
360,294

 
$
288,666

 
$
281,297

 
$
210,489

 
$
211,469

non-owner occupied
 
385,536

 
375,028

 
361,691

 
237,131

 
233,707

Real Estate Commercial, Total
 
745,830

 
663,694

 
642,988

 
447,620

 
445,176

Commercial & industrial
 
279,341

 
256,333

 
238,087

 
119,782

 
105,129

Real estate construction & development
 
179,361

 
142,702

 
135,409

 
98,212

 
101,151

Real estate residential
 
355,755

 
299,148

 
293,457

 
199,704

 
206,667

Other loans
 
15,148

 
12,380

 
13,317

 
6,361

 
7,298

Total loans
 
$
1,575,435

 
$
1,374,257

 
$
1,323,258

 
$
871,679

 
$
865,421

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SmartFinancial, Inc. and Subsidiary
 
 
 
 
Condensed Consolidated Financial Information (unaudited)
 
 
 
 
(In thousands except per share data)
 
 
 
 
 
 
As of and for the three months ending
 
 
June 30, 2018
 
March 31, 2018
 
December 31, 2017
 
September 30, 2017
 
June 30, 2017
Asset Quality Data and Ratios
 
 
 
 
 
 
 
 
 
 
Nonperforming loans
 
$
1,730

 
$
1,931

 
$
1,764

 
$
1,264

 
$
1,147

Foreclosed assets
 
3,524

 
2,665

 
3,254

 
2,888

 
2,369

Total nonperforming assets
 
$
5,254

 
$
4,596

 
$
5,018

 
$
4,152

 
$
3,516

Restructured loans not included in nonperforming loans
 
$
660

 
$
40

 
$
41

 
$
42

 
$

Net charge-offs (recoveries) to average loans (annualized)
 
0.02
%
 
0.02
%
 
(0.01
)%
 
(0.02
)%
 
(0.04
)%
Allowance for loan losses to loans
 
0.45
%
 
0.47
%
 
0.44
 %
 
0.62
 %
 
0.64
 %
Nonperforming loans to total loans, gross
 
0.11
%
 
0.14
%
 
0.13
 %
 
0.15
 %
 
0.13
 %
Nonperforming assets to total assets
 
0.25
%
 
0.26
%
 
0.29
 %
 
0.37
 %
 
0.30
 %
 
 
 
 
 
 
 
 
 
 
 
Capital Ratios
 
 
 
 
 
 
 
 
 
 
Tangible equity to tangible assets (Non-GAAP)
 
8.98
%
 
9.26
%
 
9.28
 %
 
11.45
 %
 
11.18
 %
Tangible common equity to tangible assets (Non-GAAP)
 
8.98
%
 
9.26
%
 
9.28
 %
 
11.45
 %
 
11.18
 %
SmartFinancial, Inc.:
 
Estimated1

 
 
 
 
 
 
 
 
Tier 1 leverage
 
9.37
%
 
9.59
%
 
10.48
 %
 
11.46
 %
 
11.91
 %
Common equity Tier 1
 
10.36
%
 
10.84
%
 
10.59
 %
 
13.37
 %
 
13.43
 %
Tier 1 capital
 
10.36
%
 
10.84
%
 
10.59
 %
 
13.37
 %
 
13.43
 %
Total capital
 
10.76
%
 
11.27
%
 
10.98
 %
 
13.93
 %
 
14.00
 %
SmartBank:
 
Estimated1

 
 
 
 
 
 
 
 
Tier 1 leverage
 
9.85
%
 
10.17
%
 
11.26
 %
 
10.57
 %
 
10.98
 %
Common equity Tier 1
 
10.89
%
 
11.12
%
 
10.90
 %
 
12.30
 %
 
12.32
 %
Tier 1 risk-based capital
 
10.89
%
 
11.12
%
 
10.90
 %
 
12.30
 %
 
12.32
 %
Total risk-based capital
 
11.30
%
 
11.56
%
 
11.30
 %
 
12.86
 %
 
12.89
 %

1 Current period capital ratios are estimated as of the date of this earnings release.
 





SmartFinancial, Inc. and Subsidiary
 
 
 
 
Condensed Consolidated Financial Information (unaudited)
 
 
(In thousands)
 
 
 
 
BALANCE SHEET
 
 
 
 
 
 
 
 
 
 
 
 
Ending Balances
 
 
June 30, 2018
 
March 31, 2018
 
December 31, 2017
 
September 30, 2017
 
June 30, 2017
Assets
 
 

 
 

 
 

 
 

 
 

Cash & cash equivalents
 
$
170,235

 
$
96,710

 
$
113,027

 
$
84,098

 
$
82,835

Securities available for sale
 
156,577

 
156,210

 
151,945

 
115,535

 
132,762

Other investments
 
8,273

 
7,808

 
6,431

 
6,081

 
6,080

Total loans
 
1,575,435

 
1,374,257

 
1,323,258

 
871,679

 
865,421

Allowance for loan losses
 
(7,074
)
 
(6,477
)
 
(5,860
)
 
(5,393
)
 
(5,498
)
Loans, net
 
1,568,361

 
1,367,780

 
1,317,398

 
866,286

 
859,923

Premises and equipment
 
52,203

 
44,202

 
43,000

 
33,778

 
33,765

Foreclosed assets
 
3,524

 
2,665

 
3,254

 
2,888

 
2,369

Goodwill and other intangibles
 
68,449

 
50,660

 
50,837

 
7,414

 
7,492

Cash surrender value of life insurance
 
21,944

 
21,797

 
21,647

 
11,484

 
11,392

Other assets
 
12,666

 
12,593

 
13,232

 
8,258

 
8,861

Total assets
 
$
2,062,232

 
$
1,760,425

 
$
1,720,771

 
$
1,135,822

 
$
1,145,479

 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 

 
 

 
 

 
 

 
 

Noninterest demand
 
$
301,318

 
$
276,249

 
$
220,520

 
$
185,386

 
$
183,324

Interest-bearing demand
 
246,943

 
278,965

 
231,644

 
156,953

 
156,150

Money market and savings
 
632,518

 
491,243

 
543,645

 
306,358

 
324,014

Time deposits
 
535,879

 
453,276

 
442,774

 
311,490

 
318,147

Total deposits
 
1,716,658

 
1,499,733

 
1,438,583

 
960,187

 
981,635

Repurchase agreements
 
18,635

 
15,968

 
24,055

 
26,542

 
22,946

FHLB & other borrowings
 
72,040

 
30,000

 
43,600

 
6,000

 

Other liabilities
 
7,412

 
5,775

 
8,681

 
6,505

 
6,164

Total liabilities
 
1,814,745

 
1,551,476

 
1,514,919

 
999,234

 
1,010,745

Shareholders' Equity
 
 
 
 
 
 
 
 
 
 
Preferred stock
 

 

 

 

 

Common stock
 
12,705

 
11,234

 
11,152

 
8,243

 
8,219

Additional paid-in capital
 
208,513

 
174,981

 
174,009

 
107,065

 
106,794

Retained earnings
 
29,235

 
25,303

 
21,889

 
21,654

 
19,969

Accumulated other comprehensive loss
 
(2,966
)
 
(2,569
)
 
(1,198
)
 
(374
)
 
(248
)
Total shareholders' equity
 
247,487

 
208,949

 
205,852

 
136,588

 
134,734

Total liabilities & shareholders' equity
 
$
2,062,232

 
$
1,760,425

 
$
1,720,771

 
$
1,135,822

 
$
1,145,479





SmartFinancial, Inc. and Subsidiary
 
 
 
 
Condensed Consolidated Financial Information (unaudited)
 
 
(In thousands)
 
 
 
 
INCOME STATEMENT
 
 
 
 
 
 
 
 
 
 
 
 
Three months ending
 
 
June 30, 2018
 
March 31, 2018
 
December 31, 2017
 
September 30, 2017
 
June 30, 2017
Interest Income
 
 
 
 
 
 
 
 
 
 
Loans, including fees
 
$
21,652

 
$
18,228

 
$
16,357

 
$
11,491

 
$
10,747

Investment securities and interest bearing due froms

 
1,197

 
1,049

 
770

 
740

 
692

Other interest income
 
144

 
101

 
117

 
86

 
78

Total interest income
 
22,993

 
19,378

 
17,244

 
12,317

 
11,517

Interest Expense
 
 
 
 
 
 
 
 
 
 
Deposits
 
3,238

 
2,401

 
1,806

 
1,373

 
1,241

Repurchase agreements
 
11

 
13

 
15

 
15

 
16

FHLB and other borrowings
 
206

 
153

 
81

 
5

 
11

Total interest expense
 
3,455

 
2,567

 
1,902

 
1,393

 
1,268

Net interest income
 
19,538

 
16,811

 
15,342

 
10,924

 
10,249

Provision for loan losses
 
617

 
689

 
442

 
30

 
298

Net interest income after provision for loan losses
 
18,921

 
16,122

 
14,900

 
10,894

 
9,951

Noninterest income
 
 
 
 
 
 
 
 
 
 
Service charges on deposit accounts
 
557

 
578

 
524

 
294

 
291

(Loss) gain on securities
 
(1
)
 

 

 
144

 

Gain on sale of loans and other assets
 
322

 
325

 
366

 
224

 
405

Interchange and debit card transaction fees
 
121

 
146

 
304

 
233

 
223

Other noninterest income
 
579

 
406

 
386

 
352

 
333

Total noninterest income
 
1,578

 
1,455

 
1,580

 
1,247

 
1,252

Noninterest expense
 
 
 
 
 
 
 
 
 
 
Salaries and employee benefits
 
7,648

 
7,176

 
6,272

 
5,035

 
4,758

Occupancy expense
 
1,522

 
1,533

 
1,217

 
1,114

 
963

FDIC premiums
 
317

 
102

 
150

 
102

 
61

Foreclosed asset expense
 
240

 
189

 
59

 
47

 
12

Marketing
 
215

 
185

 
167

 
177

 
129

Data Processing
 
600

 
526

 
583

 
483

 
475

Professional expenses
 
918

 
898

 
602

 
472

 
473

Amortization of other intangibles
 
229

 
188

 
155

 
78

 
61

Service contracts
 
492

 
479

 
426

 
363

 
313

Merger Expense
 
1,123

 
498

 
1,694

 
303

 
420

Other noninterest expense
 
1,968

 
1,448

 
1,242

 
1,400

 
1,164

Total noninterest expense
 
15,272

 
13,222

 
12,567

 
9,574

 
8,829

Earnings before income taxes
 
5,227

 
4,355

 
3,913

 
2,567

 
2,374

Income tax expense
 
1,295

 
940

 
3,875

 
882

 
726

Net income
 
3,932

 
3,415

 
38

 
1,685

 
1,648

 
 
 
 
 
 
 
 
 
 
 
NET INCOME PER COMMON SHARE
 
 
 
 
 
 
 
 
 
 
Basic
 
$
0.32

 
$
0.30

 
$

 
$
0.20

 
$
0.20

Diluted
 
0.32

 
0.30

 

 
0.20

 
0.20

 
 
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding
 
 
 
 
 
 
 
 
 
 
Basic
 
12,201

 
11,211

 
10,552

 
8,235

 
8,217

Diluted
 
12,320

 
11,324

 
10,709

 
8,333

 
8,326





SmartFinancial, Inc. and Subsidiary
 
 
 
 
 
 
 
 
 
 
Condensed Consolidated Financial Information (unaudited)
 
 
 
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
YIELD ANALYSIS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2018
 
Three Months Ended March 31, 2018
 
Three Months Ended June 30, 2017
 
 
Average
 
 
 
Yield/
 
Average
 
 
 
Yield/
 
Average
 
 
 
Yield/
 
 
Balance
 
Interest1
 
Cost1
 
Balance
 
Interest1
 
Cost1
 
Balance
 
Interest1
 
Cost1
Assets
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Loans
 
$
1,501,008

 
$
21,654

 
5.79
%
 
$
1,346,179

 
$
18,230

 
5.49
%
 
$
834,665

 
$
10,752

 
5.17
%
Investment securities and interest bearing due froms
 
207,524

 
1,218

 
2.35
%
 
203,923

 
1,059

 
2.11
%
 
151,840

 
707

 
1.87
%
Federal funds and other
 
8,992

 
144

 
6.42
%
 
8,414

 
101

 
4.87
%
 
5,628

 
78

 
5.56
%
Total interest-earning assets
 
1,717,524

 
23,016

 
5.38
%
 
1,558,516

 
19,390

 
5.05
%
 
992,133

 
11,537

 
4.66
%
Non-interest-earning assets
 
226,820

 
 

 
 

 
176,646

 
 
 
 
 
85,553

 
 

 
 

Total assets
 
$
1,944,344

 
 

 
 

 
$
1,735,162

 
 
 
 
 
$
1,077,686

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders’ Equity
 
 

 
 

 
 

 
 
 
 
 
 
 
 

 
 

 
 

Interest-bearing demand deposits
 
$
254,496

 
$
265

 
0.42
%
 
$
249,846

 
$
320

 
0.52
%
 
$
156,387

 
$
115

 
0.29
%
Money market and savings deposits
 
586,981

 
1,418

 
0.97
%
 
526,093

 
870

 
0.67
%
 
300,448

 
424

 
0.57
%
Time deposits
 
510,447

 
1,555

 
1.22
%
 
454,660

 
1,211

 
1.08
%
 
305,171

 
702

 
0.92
%
Total interest-bearing deposits
 
1,351,924

 
3,238

 
0.96
%
 
1,230,599

 
2,401

 
0.79
%
 
762,006

 
1,241

 
0.65
%
Securities sold under agreement to repurchase
 
15,643

 
11

 
0.28
%
 
16,186

 
13

 
0.33
%
 
19,903

 
16

 
0.32
%
Federal Home Loan Bank advances and other borrowings
 
22,780

 
206

 
3.64
%
 
26,655

 
153

 
2.33
%
 
3,482

 
11

 
1.27
%
Total interest-bearing liabilities
 
1,390,347

 
3,455

 
1.00
%
 
1,273,440

 
2,567

 
0.82
%
 
785,391

 
1,268

 
0.65
%
Noninterest-bearing deposits
 
283,494

 
 

 
 

 
231,355

 
 
 
 
 
157,965

 
 

 
 

Other liabilities
 
37,218

 
 

 
 

 
8,656

 
 
 
 
 
659

 
 

 
 

Total liabilities
 
1,711,059

 
 

 
 

 
1,513,451

 
 
 
 
 
944,015

 
 

 
 

Shareholders’ equity
 
233,285

 
 

 
 

 
221,711

 
 
 
 
 
133,671

 
 

 
 

Total liabilities and stockholders’ equity
 
$
1,944,344

 
 

 
 

 
$
1,735,162

 
 
 
 
 
$
1,077,686

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income, taxable equivalent
 
 

 
$
19,561

 
 

 
 
 
$
16,823

 
 
 
 

 
$
10,269

 
 

Interest rate spread
 
 

 
 

 
4.38
%
 
 
 
 
 
4.23
%
 
 

 
 

 
4.01
%
Tax equivalent net interest margin
 
 

 
 

 
4.57
%
 
 
 
 
 
4.38
%
 
 

 
 

 
4.15
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percentage of average interest-earning assets to average interest-bearing liabilities
 
 

 
 

 
123.53
%
 
 
 
 
 
122.39
%
 
 

 
 

 
126.32
%
Percentage of  average equity to average assets
 
 

 
 

 
12.00
%
 
 
 
 
 
12.78
%
 
 

 
 

 
12.40
%

 
 

 
 

 
 

 
 
 
 
 
 
 
 

 
 

 
 

1 Taxable equivalent




SmartFinancial, Inc. and Subsidiary
 
 
 
 
Condensed Consolidated Financial Information (unaudited)
 
 
 
 
(In thousands)
 
 
 
 
NON-GAAP RECONCILIATIONS
 
Three months ending
 
 
June 30, 2018
 
March 31, 2018
 
December 31, 2017
 
September 30, 2017
 
June 30, 2017
Operating Earnings
 
 
 
 
 
 
 
 
 
 
Net income (GAAP)
 
$
3,932

 
$
3,415

 
$
38

 
$
1,685

 
$
1,648

Securities (gains) losses
 
1

 

 

 
(144
)
 

Merger expenses
 
1,123

 
498

 
1,694

 
303

 
420

Revaluation of deferred tax assets due to change in tax law
 

 

 
2,482

 

 

Income tax effect of adjustments
 
(211
)
 
(103
)
 
(506
)
 
(25
)
 
(3
)
Net operating earnings (Non-GAAP)
 
4,845

 
3,810

 
3,707

 
1,819

 
2,065

Net operating earnings per common share (Non-GAAP):
 
 
 
 
 
 
 
 
 
 
Basic
 
$
0.40

 
$
0.34

 
$
0.35

 
$
0.22

 
$
0.25

Diluted
 
0.39

 
0.34

 
0.35

 
0.22

 
0.25

 
 
 
 
 
 
 
 
 
 
 
Operating Efficiency Ratio
 
 
 
 
 
 
 
 
 
 
Efficiency ratio (GAAP)
 
72.33
 %
 
72.97
 %
 
74.25
 %
 
78.62
 %
 
76.77
 %
Adjustment for taxable equivalent yields
 
(0.15
)%
 
(0.09
)%
 
(0.13
)%
 
(0.22
)%
 
(0.22
)%
Adjustment for securities gains (losses)
 
(0.01
)%
 
 %
 
 %
 
1.50
 %
 
 %
Adjustment for merger & conversion costs
 
(7.35
)%
 
(3.76
)%
 
(13.48
)%
 
(3.18
)%
 
(4.76
)%
Operating efficiency ratio (Non-GAAP)
 
64.82
 %
 
69.12
 %
 
60.64
 %
 
76.72
 %
 
71.79
 %
 
 
 
 
 
 
 
 
 
 
 
Loan Discount Data
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses (GAAP)
 
$
7,074

 
$
6,477

 
$
5,860

 
$
5,393

 
$
5,498

Net acquisition accounting fair value discounts to loans
 
20,748

 
16,323

 
17,862

 
8,167

 
9,086

 
 
 
 
 
 
 
 
 
 
 
Tangible Common Equity
 
 
 
 
 
 
 
 
 
 
Shareholders' equity (GAAP)
 
$
247,487

 
$
208,949

 
$
205,852

 
$
136,588

 
$
134,734

Less goodwill and other intangible assets
 
68,449

 
50,660

 
50,837

 
7,414

 
7,492

Tangible common equity (Non-GAAP)
 
$
179,038

 
$
158,289

 
$
155,015

 
$
129,174

 
$
127,242




(Back To Top)

Section 3: EX-99.2 (EXHIBIT 99.2)

smartfinancial2q18earnin
Second Quarter 2018 Earnings Call June 25, 2018


 
Legal Disclaimer Forward-Looking Statements Certain of the statements made in this presentation may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements, including statements regarding the intent, belief, or current expectations of SmartFinancial’s management regarding the company’s strategic direction, prospects, or future results or the benefits of the proposed merger with Foothills Bancorp (the “Foothills merger”), are subject to numerous risks and uncertainties. Such risks and uncertainties include, among others, (1) the risk that the cost savings and revenue synergies anticipated in connection with the Foothills merger may not be realized or may take longer than anticipated to be realized, (2) disruption from the Foothills merger with customers, suppliers, or employee or other business relationships, (3) the occurrence of any event, change, or other circumstances that could give rise to the termination of the merger agreement with Foothills Bancorp, (4) the risk of successful integration of our business with that of Foothills Bancorp, (5) the failure of Foothills Bancorp’s shareholders to approve the merger agreement, (6) the amount of costs, fees, expenses, and charges related to the Foothills merger, (7) our ability to successfully integrate the businesses acquired as part of previous mergers with that of SmartBank, (8) reputational risk and the reaction of our customers and Foothills Bancorp’s customers to the Foothills merger, (9) the failure of the conditions to closing of the Foothills merger to be satisfied, (10) the risk that the integration of our merger partners’ businesses into our operations will be materially delayed or will be more costly or difficult than expected, (11) the possibility that the Foothills merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events, (12) the dilution caused by SmartFinancial’s issuance of additional shares of its common stock in the Foothills merger, (13) changes in management’s plans for the future, (14) prevailing economic and political conditions, particularly in our market areas, (15) credit risk associated with our lending activities, (16) changes in interest rates, loan demand, real estate values, and competition, (17) changes in accounting principles, policies, or guidelines, (18) changes in applicable laws, rules, or regulations, and (19) other competitive, economic, political, and market factors affecting our business, operations, pricing, products, and services. Certain additional factors which could affect the forward-looking statements can be found in SmartFinancial’s 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 SEC and available on the SEC’s website (www.sec.gov). SmartFinancial disclaims any obligation to update or revise any forward- Nonlooking-GAAPstatementsFinancialcontainedMeasuresin this presentation, which speak only as of the date hereof, whether as a result of new information, future events, or otherwise. 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 available to common shareholders; (ii) operating efficiency ratio; (iii) tangible common equity, and (iv) net interest income ex- purchase accounting adjustments in its analysis of the company's performance. Net operating earnings available to common shareholders excludes the following from net income available to common shareholders: securities gains and losses, merger conversion expenses, and the effect of the December, 2017 tax law change on deferred tax assets, and the income tax effect of adjustments. The operating efficiency ratio excludes securities gains and losses and merger expenses from the efficiency ratio. Tangible common equity excludes total preferred stock, preferred stock paid in capital, goodwill, and other intangible assets. Net interest income ex- purchase accounting adjustments excludes the additional accretion income from acquired loans which are a result of purchase accounting treatment. Management believes that non-GAAP financial measures provide additional useful information that allows readers to evaluate the ongoing performance of the company and provide meaningful comparisons to its peers. 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


 
Important Information Important Information for Shareholders This presentation shall not constitute an offer to sell, the solicitation of an offer to sell, or the solicitation of an offer to buy any securities or the solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. In connection with the proposed merger with Foothills Bancorp, Inc. (“Foothills Bancorp”), SmartFinancial will file a registration statement on Form S-4 with the Securities and Exchange Commission (the “SEC”), which will contain the proxy statement of Foothills Bancorp and a prospectus of SmartFinancial. Shareholders of Foothills Bancorp are encouraged to read the registration statement, including the proxy statement/prospectus that will be part of the registration statement, because it will contain important information about the proposed merger, Foothills Bancorp, and SmartFinancial. After the registration statement is filed with the SEC, the proxy statement/prospectus and other relevant documents will be mailed to Foothills Bancorp shareholders and will be available for free on the SEC’s website (www.sec.gov). The proxy statement/prospectus will also be made available for free by contacting Ron Gorczynski, SmartFinancial’s Chief Administrative Officer, at 865.437.5724 or Mark Loudermilk, the President and Chief Executive Officer of Foothills Bancorp, at 865.738.2230. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended. 3


 
The SmartFinancial Story pro forma for SmartBankpending transactionwas founded in 2007 as a de novo bank in East Tennessee and has grown to an approximate $2.2 billion-asset franchise through prudent organic growth and a thoughtful series of mergers ( ) The core franchise in East Tennessee has been expanded into additional attractive markets in Alabama, Florida, and the Nashville MSA SmartFinancial, Inc. The corporate headquarters for holding company is based in Knoxville,SMBK TN The company’s stock is traded on the Nasdaq Capital Market under the symbol “ ” and is included in several indexes, including the Russell 2000 SmartBank (legacy) GulfSouth Private Bank Cornerstone Community Bank Cleveland, TN Branch Capstone Bank Southern Community Bank Foothills Bank & Trust (pending) Panama City Map Sources: S&P Global Market Intelligence, ESRI 4


 
Culture building a culture Associates thrive empowered leaders core values We are critical part of ourwhere culture and are to be . The that we have established as a company help us operate in unison and have become a . Our Associates are key to SmartBank’s success. Core Values A Delivering Exhibiting B Creating Exceptional, ct with Integrity over-the-top C “WOW” Professional & Enthusiasm De Enthusiastic Experiences Knowledgeable and Positivity Service Ereate Positivity emonstrate Accountability mbrace Change Positioning Statement unparalleled value every At SmartBank, delivering Exceptional valueto our Shareholders, Associates,smart Clientssolutions and fastthe Communities responses wedeep serve commitment drives decision and action we take. means being there with , and every single time. By doing this, we will create the Southeast’s next, great community banking franchise. 5


 
Our Business Strategy Create a valuable southeastern banking franchise through organic growth in strong markets, coupled with an acquisition model positioning our company as a partner of choice for banks in our region Continually improve earnings and efficiency metrics as we build out our model with scale Execute a disciplined growth strategy that never loses focus on a strong asset quality culture Create the premier banking franchise in our markets by driving quality core deposit growth Insist on a consistent culture and environment where top performers want to work 6


 
An Emerging Southeast Acquirer SmartFinancial is transforming into an experienced and preferred Southeast acquirer, having completed five transactions that added low-cost core deposits in attractive markets across three states Nearly three-fourths of the total franchise’s assets and core deposits, including the pro forma impact of the Foothills transaction, have been assembled through a careful series of acquisitions since 2012 SmartFinancial continues to have ongoing discussions with potential targets in existing and contiguous markets Core Merger Current Deposits Completion SmartBank Acquired1 Merger Target Merger Type Date Target Markets Branches ($000) GulfSouth Private Bank FDIC - Assisted Transaction 10/19/12 Panhandle Florida 2 111,900 Cornerstone Community Bank Reverse Merger of Equals 08/31/15 Chattanooga MSA 5 287,609 Cleveland, TN Branch Branch 05/19/17 Cleveland, TN 1 21,900 Capstone Bank Whole Bank 11/01/17 Alabama 8 379,911 Southern Community Bank Whole Bank 05/01/18 MiddleAcquired TN/Huntsville, Franchise AL 234 1,004,349203,029 Foothills Bank & Trust Whole Bank - Knoxville, TN 2 3 191,787 Pro Forma SMBK Franchise 29 1,656,165 1 Core deposits are defined as Total Deposits less Brokered Deposits and Listing Service Deposits, as reported just prior to completion 2 Pro Forma SMBK Franchise reflects reported 1Q2018 Core Deposits, adjusted to include Southern Community Bank and Foothills Bank & Trust Source: S&P Global Market Intelligence 7


 
Disciplined Acquisition Strategy SmartFinancial has adhered to a disciplined set of merger criteria including: No more than 3 years of initial TBV-per-share dilution Meaningful EPS accretion in the first full year of operations Conservative loan marks Franchise additive SmartFinancial is committed to balancing organic growth with thoughtful acquisitions and will not make acquisitions simply for the sake of growth The table below shows the initial projected impacts of the three whole bank acquisitions announced within the last 5 quarters First Full Year Credit TBV EPS Accretion P/TBV Mark Target Announcement Earnback1 (Projected) (Announce) Approach Capstone Bank May 2017 ~ 3.0 years 25% 159% >ALLL Southern Community Bank December 2017 < 2.5 years 10% 149% >ALLL 2 1 FoothillsEarnback periods Bank and & EPSTrust accretion for mergers announcedJune 2018 before federal tax reform~ 2.7 years 8% 168% >ALLL should be more favorable to shareholders under the lower corporate tax rate 2 Pricing based on 20-day closing average in SMBK stock prior to announcement 8


 
Second Quarter 2018 Earnings Call FINANCIAL HIGHLIGHTS


 
Second Quarter 2018 Highlights Net Income of $3.9 million for the quarter, up 139% from a year earlier ROAA of 0.81% for the quarter and Net Operating ROAA (Non-GAAP) of 1.00% fully taxable equivalent “FTE” Net Interest Margin ( ) of 4.57%, up 42 basis points from a year earlier Nonperforming Assets were 0.25% of Total Assets Completed second acquisition in seven months, increasing assets to $2.0 billion 10


 
Summary Results ROAA Net Operating ROAA (Non-GAAP) Net Interest Income / Average Assets 1.00% 4.10% 4.00% 0.75% 3.90% 0.50% 3.80% 0.25% 3.70% 0.00% 3.60% Noninterest Income / Average Assets Noninterest Expense / Average Assets 0.50% 3.40 % 0.40% 3.30 % 0.30% 3.20 % 0.20% 0.10% 3.10 % 0.00% 3.00 % 11


 
Earnings Profile – Second Quarter 2018 2Q18 1Q18 2Q17 EPS increased 60% year over Total Interest Income $22,993 $19,378 $11,517 year (“YoY”) Total Interest Expense 3,455 2,567 1,268 Earnings Before Income Net Interest Income 19,538 16,811 10,249 Taxes increased 120% YoY Provision for Loan Losses 617 689 298 Net Interest Income After Provision for Loan Losses 18,921 16,122 9,951 Net Interest Income Total Noninterest Income 1,577 1,455 1,252 increased over 90% YoY Total Noninterest Expense 15,272 13,222 8,829 primarily due to higher Earnings Before Income Taxes 5,226 4,355 2,374 average earning asset Income Tax Expense 1,295 940 726 balances and higher earning Net Income Available to Common Shareholders $3,932 $3,415 $1,648 asset yields Net Income Per Common Share Basic $0.32 $0.30 $0.20 Increases in Noninterest Diluted $0.32 $0.30 $0.20 Expense primarily driven by Net Operating Earnings Per Common Share (Non-GAAP): the Capstone and Tennessee Basic $0.40 $0.34 $0.25 Bancshares acquisitions, as Diluted $0.39 $0.34 $0.25 well as merger expenses 12


 
Net Interest Income Net Interest Margin (FTE) increased quarter to quarter primarily due to increases on the yields of both core loans and securities, and higher purchase accounting adjustments on acquired loans Compared to a year ago, Earning Asset Yields are up 72 basis points; the Average Cost of Interest- bearing Liabilities are up 35 basis points Excluding the effect of purchase accounting adjustments, the Net Interest Margin (FTE) decreased 9 basis points quarter2Q18 to quarter1Q18 2Q17 Average Yields and Rates 2Q18 1Q18 2Q17 Net Interest Income $19,538 $16,811 $10,249 Loans 5.79% 5.49% 5.17% Average Earning Assets $1,717,524 $1,558,516 $992,133 Investment Securities and Interest-bearing Due Net Interest Margin from Banks 2.35% 2.11% 1.87% Federal Funds and Other Investments 6.42% 4.87% 5.56% Earning Asset Yields 5.38% 5.05% 4.66% 4.75% Total Interest-bearing Deposits 0.96% 0.79% 0.65% 4.50% Securities Sold Under Agreement to Repurchase 0.28% 0.33% 0.32% Federal Home Loan Bank Advances and Other 4.25% Borrowings 3.64% 2.33% 1.27% 4.00% Total Interest-bearing Liabilities 1.00% 0.82% 0.65% 3.75% Net Interest Margin (FTE) 4.57% 4.38% 4.15% 3.50% Cost of Funds 0.81% 0.69% 0.54% 2Q17 3Q17 4Q17 1Q18 2Q18 Net Interest Margin (FTE) Net Interest Margin (FTE - ex Purchase Accounting Adj.) (Non-GAAP) 13


 
Noninterest Income 2Q18 Noninterest Income increased primarily due to higher other noninterest income Quarterly Noninterest Income has trended higher over the last five quarters from approximately $1.2 million in 2Q17 to $1.6 million in 2Q18 Noninterest Income $2,000,000 $1,500,000 (Loss) Gain on Securities $1,000,000 Other Noninterest Income Gain on Sale of Loans and Other Assets $500,000 Service Charges on Deposit Accounts $0 2Q17 3Q17 4Q17 1Q18 2Q18 14


 
Noninterest Expense Efficiency Ratio decreased to 72.3%, the lowest of any quarter since the Cornerstone merger in 2015. Operating Efficiency Ratio (Non-GAAP) was 64.8%; Salary increases are primarily due to the addition of associates from the Tennessee Bancshares acquisition during the quarter Data processing slightly elevated due to operating two core systems for half of the quarter Merger expense of $1.1 million in theNoninterestquarter Expense $20,000,000 80.0% 78.0% Merger expense $15,000,000 76.0% Other Amortization of Intangibles $10,000,000 74.0% Data Processing 72.0% $5,000,000 Occupancy 70.0% Salaries & Benefits $0 68.0% Efficiency Ratio 2Q17 3Q17 4Q17 1Q18 2Q18 15


 
Balance Sheet 2Q18 1Q18 2Q17 Assets increased primarily due to the Cash & Cash Equivalents $ 170,235 $ 96,710 $ 82,835 Securities Available for Sale 156,577 156,210 132,762 Tennessee Bancshares acquisition Other Investments 8,273 7,808 6,080 Total Loans 1,575,434 1,374,256 865,421 Cash & Cash Equivalents elevated due to Allowance for Loan Losses (7,074) (6,477) (5,498) Premises and Equipment 52,203 44,202 33,765 liquidation of acquired securities Foreclosed Assets 3,524 2,665 2,369 portfolio Goodwill and Other Intangibles 68,449 50,660 7,492 Cash Surrender Value of Life Insurance 21,944 21,797 11,392 Other Assets 12,666 12,593 8,861 Shift from Interest-bearing Demand to Total Assets $ 2,062,232 $ 1,760,425 $ 1,145,479 Money Market and Savings due to Non-interest Demand $ 301,318 $ 276,249 $ 183,324 product change on one municipal Interest-bearing Demand 246,942 278,965 156,150 deposit Money Market and Savings 632,518 491,243 324,014 Time Deposits 535,879 453,276 318,147 Total Deposits 1,716,658 1,499,733 981,635 FHLB & Other Borrowings includes $15 Repurchase Agreements 18,635 15,968 22,946 million in holding company line of FHLB & Other Borrowings 72,040 30,000 - Other Liabilities 7,413 5,775 6,164 credit, with the remaining balance in Total Liabilities $ 1,814,745 $ 1,551,476 $ 1,010,745 short term FHLB borrowings Total Shareholders' Equity $ 247,487 $ 208,949 $ 134,734 Total Liabilities & Shareholders' Equity $ 2,062,232 $ 1,760,425 $ 1,145,479 16


 
Loan & Deposit Composition 2Q18 17


 
CRE Ratios C&D levels (100 Ratio) are still well below regulatory guidance levels Total CRE levels (300 Ratio) remained relatively stable quarter to quarter Managing these ratios are part of our overall organic growth, merger opportunity and capital management strategies 100 Ratio 300 Ratio 150% 350% 125% 300% 100% 250% 75% 50% 200% Q1 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2 2017 Q3 2017 Q4 2018 Q1 2018 Q2 Q1 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2 2017 Q3 2017 Q4 2018 Q1 2018 Q2 18


 
Asset Quality Excellent asset quality, with Nonperforming Assets at 0.25% of Total Assets Remaining fair value discounts on acquired loans are more than 2.9x the current Allowance For Loan Losses Acquisitions are marked conservatively for potential losses Nonperforming Assets Loan Discounts $6,000 0.40% $25,000 0.80% $5,000 $20,000 0.60% $4,000 0.30% $15,000 $3,000 0.40% $10,000 $2,000 0.20% 0.20% $1,000 $5,000 $0 0.10% $0 0.00% 2Q17 3Q17 4Q18 1Q18 2Q18 2Q17 3Q17 4Q18 1Q18 2Q18 Foreclosed Assets Allowance for Loan Losses (GAAP) Nonperforming Loans Net Acquisition Accounting Fair Falue Discounts to Loans Nonperforming Assets/ Total Assets Allowance for Loan Losses/ Loans 19


 
Supplemental Information


 
Loan Composition Over Time Loan balance increases due to acquired loans and organic growth Loan composition shifted slightly, with Owner Occupied CRE and Residential RE contributing to a larger percent of the portfolio $1,800,000 $1,600,000 $1,400,000 $1,200,000 Other Residential RE $1,000,000 CRE, Non Owner Occupied $800,000 CRE, Owner Occupied C&D $600,000 C&I $400,000 $200,000 $0 2Q17 3Q17 4Q17 1Q18 2Q18 21


 
Deposit Composition Over Time Well diversified deposit mix growth of money market, savings, and noninterest demand replacing mostly wholesale time deposits Cost of funds increased just 27 bps while Fed Funds has increased 75 bps over the last year $1,800,000 2.00% $1,500,000 1.50% $1,200,000 Time Deposits Money Market and Savings $900,000 1.00% Interest-bearing Demand Noninterest Demand $600,000 0.50% Cost of Funds $300,000 $0 0.00% 2Q17 3Q17 4Q17 1Q18 2Q18 22


 
Non-GAAP Reconciliations 2Q18 1Q18 4Q17 3Q17 2Q17 Net interest income - ex purchase acct. adj. Net interest income (GAAP) $ 19,538 $ 16,811 $ 15,342 $ 10,924 $ 10,249 Taxable equivalent adjustment 23 16 22 21 21 Net interest income TEY 19,561 16,827 15,364 10,945 10,270 Purchase accounting adjustments 2,583 1,273 2,411 888 696 Net interest income -ex purchase acct. adj. (Non-GAAP) $ 16,978 $ 15,554 $ 12,953 $ 10,057 $ 9,574 Loan Discount Data Allowance for loan losses (GAAP) $ 7,074 $ 6,477 $ 5,860 $ 5,393 $ 5,498 Net acquisition accounting fair value discounts to loans 20,748 16,323 17,862 8,167 9,086 Tangible Common Equity Shareholders' equity (GAAP) $ 247,487 $ 208,949 $ 205,852 $ 136,588 $ 134,734 Less goodwill and other intangible assets 68,449 50,660 50,837 7,414 7,492 Tangible Common Equity (Non-GAAP) $ 179,037 $ 158,289 $ 155,015 $ 129,174 $ 127,242 23


 
Non-GAAP Reconciliations 2Q18 1Q18 4Q17 3Q17 2Q17 Operating Earnings Net income (GAAP) $ 3,932 $ 3,415 $ 38 $ 1,685 $ 1,648 Securities (gains) losses 1 - - (144) - Merger costs 1,123 498 1,694 303 420 Revaluation of deferred tax assets due to change in tax law - - 2,482 - - Income tax effect of adjustments (211) (103) (506) (25) (3) Net operating earnings available to common shareholders (Non-GAAP) $ 4,845 $ 3,810 $ 3,707 $ 1,819 $ 2,065 Net operating earnings per common share: Basic $0.40 $0.34 $0.35 $0.22 $0.25 OperatingDiluted Efficiency Ratio $0.39 $0.34 $0.35 $0.22 $0.25 Efficiency ratio (GAAP) 72.33% 72.97% 74.25% 78.62% 76.77% Adjustment for taxable equivalent yields (0.15%) (0.09%) (0.13%) (0.22%) (0.22%) Adjustment for securities gains (losses) (0.01%) - - 1.50% - Adjustment for merger expenses (7.35%) (3.76%) (13.48%) (3.18%) (4.76%) Operating efficiency ratio (Non-GAAP) 64.82% 69.12% 60.64% 76.72% 71.79% 24


 
SmartFinancial, Inc. Management Over 26 years in banking Over 15 years in banking Over 23 years in banking and financial services Led company from start- Responsible for driving key strategic initiatives Responsible for driving up in 2007 to over $2.0 and oversees the Board of billion today Directors M&A, investor relations, financial analysis and Former President of development management Former EVP and Chief Welborn and Associates; Financial Officer of and President and CEO of Former EVP and Chief Citizen’s National Bank Boyd Brothers, Inc. and a Accounting Officer of BNC; Founding Partner of the Billy Carroll MillerLamp Welborn Post Group Ron Gorczynskiand CFO of Square 1 Bank President & Chairman of the Chief Administration CEO Board Officer Over 16 years in financial Over 20 years in banking Over 30 years in financial Over 30 years in financial services industry industry Responsible for credit Responsible for finance risk including credit Oversees the commercial Oversees the commercial and accounting underwriting, policy and and consumer lending and retail deposit special assets divisions divisions Former investment advisor at Moon Capital Former SVP and East Former bank examiner Former President & CEO Management Tennessee Area Credit for TN Dep. of Financial of Southern Community C. Bryan Johnson RhettOfficer Jordan of Regions Bank Greg InstitutionsDavis ; SVP and Bill YoderBank; District Manager City Executive for BB&T for US Bank Chief Financial Chief Credit Chief Lending Chief Banking and Officer Officer Officer Deposit Officer 25


 
Investor Contacts Billy Carroll Miller Welborn President & CEO Chairman (865) 868-0613 (423) 385-3067 Billy.Carroll@SmartBank.com Miller.Welborn@SmartBank.com SmartFinancial, Inc. 5401 Kingston Pike, Suite 600 Knoxville, TN 37919


 
(Back To Top)