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

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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: October 23, 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 October 23, 2018, SmartFinancial, Inc. issued a press release reporting earnings results for its third quarter ending September 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 September 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 October 24, 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
99.1
Press release announcing third quarter 2018 financial results dated October 23, 2018

99.2
Third 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: October 24, 2018
 
 
/s/ William Y. Carroll, Jr.
 
William Y. Carroll, Jr.
 
President & Chief Executive Officer





EXHIBIT INDEX 

Exhibit No.
 
Description
 
 
 
 
Press release announcing third quarter 2018 financial results dated October 23, 2018

 
Third quarter 2018 investor presentation




(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit


Exhibit 99.1
395456254_image001rgba01.jpg
 
3Q 2018
  
SmartFinancial Announces Record Earnings with Third Quarter 2018 Net Income of $4.3 million
Net operating earnings (Non-GAAP) of $5.0 million for the quarter
 
Performance Highlights 

Return on average assets of 0.85 percent and net operating return on average assets (non-GAAP) of 0.98 percent.
Yield on earning assets, taxable equivalent, of 5.03 percent, an increase of 0.33 percentage points from a year ago.
Noninterest expense to average assets of 2.90 percent, a decrease of 0.44 percentage points from a year ago.
Completed subordinated debt offering of $40 million during the quarter.

KNOXVILLE, TN - October 23, 2018 - SmartFinancial, Inc. ("SmartFinancial"; NASDAQ: SMBK), today announced net income of $4.3 million for the third quarter of 2018, compared to $1.7 million a year ago. Diluted net income per share was $0.34 for the third quarter of 2018, compared to $0.20 during the third quarter of 2017. Net operating earnings (Non-GAAP), which excludes securities gains and merger expenses, totaled $5.0 million in the third quarter of 2018 compared to $1.8 million in the third quarter of 2017.

Billy Carroll, President & CEO, stated: "I am pleased to report a very solid quarter with record earnings for SmartFinancial.  As we execute on our growth strategy, we continue to make strides on building a very solid foundation for our company.  We had another successful conversion, as we integrated and rebranded the middle Tennessee and northern Alabama offices of Tennessee Bancshares , Inc. while planning for our upcoming acquisition of east Tennessee-based Foothills Bancorp, Inc.  Also highlighting this quarter was our successful $40 million subordinated debt raise that positions the company for our next phase of growth."
 
SmartFinancial's Chairman, Miller Welborn, concluded: “I am excited about our continued growth and accomplishments this quarter.  Also, being assigned an investment grade BBB senior unsecured debt rating and BBB- subordinated debt rating from the Kroll Bond Rating Agency during the quarter is an accolade we are extremely proud to obtain. We also have all necessary approvals for the acquisition of Foothills Bancorp, Inc. and anticipate a closing of November 1.”
 
Third Quarter 2018 compared to Second Quarter 2018

Net income was $4.3 million for the third quarter of 2018, compared to $3.9 million in the prior quarter. Diluted net income per share was $0.34 for the third quarter of 2018, compared to $0.32 during the second quarter of 2018. Net operating earnings (non-GAAP), which is net income excluding securities gains and merger expenses, totaled $5.0 million in the third quarter of 2018 compared to $4.8 million in the previous quarter.

Net interest income to average assets of 3.70 percent for the quarter decreased from 4.03 percent in the second quarter of 2018, primarily due to lower accretion on acquired loans. Net interest income totaled $18.9 million in the third quarter of 2018, compared to $19.5 million in the second quarter of 2018. Net interest margin, taxable equivalent, decreased from 4.54 percent in the second quarter of 2018 to 4.11 percent in the third quarter of 2018 as a result of lower accretion income on acquired loans and higher deposit costs.
 
Provision for loan losses was $302 thousand in the third quarter of 2018, compared to $617 thousand in the second quarter of 2018. The decrease in provision for loan losses was due to slower growth of the organic loan portfolio during the period. The allowance for loan losses and leases ("ALLL") was $7.2 million, or 0.45 percent of total loans as of September 30, 2018, compared to $7.1 million, or 0.45 percent of total loans, as of June 30, 2018.
 

395456254_image002rgba01.jpg



Nonperforming loans as a percentage of total loans was 0.16 percent as of September 30, 2018, which was an increase from 0.11 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 0.27 percent as of September 30, 2018, compared to 0.25 percent as of June 30, 2018.
 
Noninterest income to average assets of 0.36 percent for the period increased slightly from 0.33 percent in the second quarter of 2018. Noninterest income totaled $1.9 million in the third quarter of 2018, compared to $1.6 million in the second quarter of 2018, primarily due to higher gains on sale of loans and other assets.

Noninterest expense to average assets of 2.90 percent for the quarter decreased from 3.15 percent in the second quarter of 2018. Noninterest expense totaled $14.8 million in the third quarter of 2018, a decrease of $0.5 million from the second quarter of 2018, primarily due to lower merger expenses. Income tax expense was $1.3 million in the third quarter of 2018 compared to $1.3 million in the second quarter of 2018. The company's effective tax rate decreased to 23.2 percent in the third quarter of 2018 compared to 24.8 percent in the second quarter of 2018, due to lower nondeductible merger expenses and an increase in exercised options with associated tax benefits.

Third Quarter 2018 compared to Third Quarter 2017

Net income totaled $4.3 million in the third quarter of 2018, or $0.34 per diluted share, compared to $1.7 million, or $0.20 per diluted share, in the third quarter of 2017. Net operating earnings (non-GAAP), which excludes securities gains and merger expenses, totaled $5.0 million in the third quarter of 2018 compared to $1.8 million in the third quarter of 2017.

Net interest income to average assets of 3.70 percent for the quarter decreased from 3.81 percent in the third quarter of 2017. Net interest income totaled $18.9 million in the third quarter of 2018, compared to $10.9 million in the third 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, decreased from 4.17 percent in the third quarter of 2017 to 4.11 percent in the third quarter of 2018 as a result of increases on the cost of deposits.

Provision for loan losses was $302 thousand in the third quarter of 2018, compared to $30 thousand in the third 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 $7.2 million, or 0.45 percent of total loans as of September 30, 2018, compared to $5.4 million, or 0.62 percent of total loans, as of September 30, 2017.
 
Nonperforming loans as a percentage of total loans was 0.16 percent as of September 30, 2018, an increase from 0.15 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 0.27 percent as of September 30, 2018, compared to 0.37 percent as of September 30, 2017.
 
Noninterest income to average assets of 0.36 percent for the quarter decreased from 0.43 percent in the third quarter of 2017. Noninterest income totaled $1.9 million in the third quarter of 2018, compared to $1.2 million in the third quarter of 2017.

Noninterest expense to average assets of 2.90 percent for the quarter decreased from 3.34 percent in the third quarter of 2017. Noninterest expense totaled $14.8 million in the third quarter of 2018, compared to $9.6 million in the third quarter of 2017. The increases in noninterest expense over the prior year in salaries and employee benefits and occupancy expense were primarily due to the acquisitions of Capstone Bancshares, Inc. in the fourth quarter of 2017 and Tennessee Bancshares, Inc. in the second quarter of 2018. The company's effective tax rate was 23.2 percent in the third quarter of 2018 compared to 34.4 percent in the third 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 third quarter of 2018 on Tuesday, October 23, 2018, and will host a conference call on Wednesday, October 24, 2018 at 10:00 a.m. ET. To access this interactive teleconference, dial (888) 317-6003 or (412) 317-6061 and enter the confirmation number, 2373912. A replay of the conference call will be available through October 24, 2019, by dialing (877) 344-7529 or (412) 317-0088 and entering the confirmation number, 10125644. Conference call materials (earnings release & conference call presentation will be published on the company’s webpage located at http://www.smartfinancialinc.com/CorporateProfile ), 9:00 am EDT prior to the morning of the conference call.


395456254_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 25 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 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; (iii) tangible common equity; and (iv) net operating return on average assets, 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 related 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 related expenses from the efficiency ratio. Tangible common equity excludes goodwill and other intangible assets. Net operating return on average assets is annualized net operating income divided by GAAP total average 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.

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, Inc. (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 amount of costs, fees, expenses, and charges related to the Foothills merger, (6) our ability to successfully integrate the businesses acquired as part of previous mergers with that of SmartBank, (7) reputational risk and the reaction of our customers and Foothills Bancorp’s customers to the Foothills merger, (8) the failure of the conditions to closing of the Foothills merger to be satisfied, (9) the risk that the integration of our merger partner's business into our operations will be materially delayed or will be more costly or difficult than expected, (10) the possibility that the Foothills merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events, (11) the dilution caused by SmartFinancial’s issuance of additional shares of its common stock in the Foothills merger, (12) changes in management’s plans for the future, (13) prevailing economic and political conditions, particularly in our market areas, (14) credit risk associated with our lending activities, (15) changes in interest rates, loan demand, real estate values, and competition, (16) changes in accounting principles, policies, or guidelines, (17) changes in applicable laws, rules, or regulations, and (18) 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.


395456254_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
 
 
September 30, 2018
 
June 30, 2018
 
March 31, 2018
 
December 31, 2017
 
September 30, 2017
Selected Performance Ratios (Annualized)
 
 
 
 
 
 
 
 
 
 
Return on average assets
 
0.85
%
 
0.81
%
 
0.80
%
 
0.01
 %
 
0.59
 %
Net operating return on average assets (Non-GAAP)
 
0.98
%
 
1.00
%
 
0.89
%
 
0.99
 %
 
0.63
 %
Return on average shareholder equity
 
6.86
%
 
6.76
%
 
6.25
%
 
0.08
 %
 
4.91
 %
Return on average tangible common equity (Non-GAAP)
 
9.44
%
 
8.96
%
 
8.10
%
 
0.10
 %
 
5.20
 %
Net operating return on average shareholder equity (Non-GAAP)
 
7.88
%
 
8.33
%
 
6.97
%
 
7.98
 %
 
5.30
 %
Net operating return on average tangible common equity (Non-GAAP)
 
10.84
%
 
11.04
%
 
9.04
%
 
9.94
 %
 
5.61
 %
Net interest income / average assets
 
3.70
%
 
4.03
%
 
3.93
%
 
4.09
 %
 
3.81
 %
Yield on earning assets
 
5.02
%
 
5.34
%
 
5.02
%
 
5.04
 %
 
4.69
 %
Yield on earning assets, TE
 
5.03
%
 
5.34
%
 
5.03
%
 
5.05
 %
 
4.70
 %
Cost of interest-bearing liabilities
 
1.15
%
 
1.00
%
 
0.82
%
 
0.70
 %
 
0.68
 %
Net interest margin
 
4.11
%
 
4.53
%
 
4.36
%
 
4.49
 %
 
4.16
 %
Net interest margin, TE
 
4.11
%
 
4.54
%
 
4.36
%
 
4.49
 %
 
4.17
 %
Noninterest income / average assets
 
0.36
%
 
0.33
%
 
0.34
%
 
0.42
 %
 
0.43
 %
Noninterest expense / average assets
 
2.90
%
 
3.15
%
 
3.09
%
 
3.35
 %
 
3.34
 %
Efficiency ratio
 
71.37
%
 
72.34
%
 
72.39
%
 
74.26
 %
 
78.67
 %
Operating efficiency ratio (Non-GAAP)
 
67.21
%
 
64.82
%
 
69.12
%
 
60.64
 %
 
76.72
 %
Pre-tax pre-provision income / average assets
 
1.23
%
 
1.21
%
 
1.18
%
 
1.16
 %
 
0.90
 %
 
 
 
 
 
 
 
 
 
 
 
Per Common Share
 
 
 
 
 
 
 
 
 
 
Net income, basic
 
$
0.34

 
$
0.32

 
$
0.30

 
$

 
$
0.20

Net income, diluted
 
0.34

 
0.32

 
0.30

 

 
0.20

Net operating earnings, basic (Non-GAAP)
 
0.39

 
0.40

 
0.34

 
0.35

 
0.22

Net operating earnings, diluted (Non-GAAP)
 
0.39

 
0.39

 
0.34

 
0.34

 
0.22

Book value
 
19.74

 
19.48

 
18.60

 
18.46

 
16.57

Tangible book value (Non-GAAP)
 
14.38

 
14.09

 
14.09

 
13.90

 
15.67

 
 
 
 
 
 
 
 
 
 
 
Common shares outstanding
 
12,750

 
12,705

 
11,234

 
11,153

 
8,243

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SmartFinancial, Inc. and Subsidiary
 
 
 
 
Condensed Consolidated Financial Information (unaudited)
 
 
 
 
(In thousands except per share data)
 
 
 
 
 
 
As of and for the three months ending
 
 
September 30, 2018
 
June 30, 2018
 
March 31, 2018
 
December 31, 2017
 
September 30, 2017
Composition of Loans
 
 
 
 
 
 
 
 
 
 
Real estate commercial
 
 
 
 
 
 
 
 
 
 
owner occupied
 
$
364,164

 
$
360,294

 
$
288,666

 
$
281,297

 
$
210,489

non-owner occupied
 
400,275

 
385,536

 
375,028

 
361,691

 
237,131

Real estate commercial, total
 
764,439

 
745,830

 
663,694

 
642,988

 
447,620

Commercial & industrial
 
289,732

 
279,341

 
256,333

 
238,087

 
119,782

Real estate construction & development
 
166,089

 
179,361

 
142,702

 
135,409

 
98,212

Real estate residential
 
351,948

 
355,755

 
299,148

 
293,457

 
199,704

Other loans
 
12,986

 
15,148

 
12,380

 
13,317

 
6,361

Total loans
 
$
1,585,194

 
$
1,575,435

 
$
1,374,257

 
$
1,323,258

 
$
871,679

 
 
 
 
 
 
 
 
 
 
 
Asset Quality and Additional Loan Data
 
 
 
 
 
 
 
 
 
 
Nonperforming loans
 
$
2,604

 
$
1,730

 
$
1,931

 
$
1,764

 
$
1,264

Foreclosed assets
 
2,941

 
3,524

 
2,665

 
3,254

 
2,888

Total nonperforming assets
 
$
5,545

 
$
5,254

 
$
4,596

 
$
5,018

 
$
4,152

Restructured loans not included in nonperforming loans
 
$
369

 
$
660

 
$
40

 
$
41

 
$
42

Net charge-offs (recoveries) to average loans (annualized)
 
0.06
%
 
0.02
%
 
0.02
%
 
(0.01
)%
 
(0.02
)%
Allowance for loan losses to loans
 
0.45
%
 
0.45
%
 
0.47
%
 
0.44
 %
 
0.62
 %
Nonperforming loans to total loans, gross
 
0.16
%
 
0.11
%
 
0.14
%
 
0.13
 %
 
0.15
 %
Nonperforming assets to total assets
 
0.27
%
 
0.25
%
 
0.26
%
 
0.29
 %
 
0.37
 %
Acquisition accounting discounts to loans
 
19,500

 
20,748

 
16,323

 
17,862

 
8,167

Accretion income on acquired loans
 
1,208

 
2,583

 
1,274

 
2,411

 
888

 
 
 
 
 
 
 
 
 
 
 
Capital Ratios
 
 
 
 
 
 
 
 
 
 
Equity to Assets
 
12.27
%
 
12.00
%
 
11.87
%
 
11.96
 %
 
12.03
 %
Tangible equity to tangible assets (Non-GAAP)
 
9.25
%
 
8.98
%
 
9.26
%
 
9.28
 %
 
11.45
 %
Tangible common equity to tangible assets (Non-GAAP)
 
9.25
%
 
8.98
%
 
9.26
%
 
9.28
 %
 
11.45
 %
SmartFinancial, Inc.:
 
Estimated1

 
 
 
 
 
 
 
 
Tier 1 leverage
 
9.26
%
 
9.82
%
 
9.59
%
 
10.48
 %
 
11.46
 %
Common equity Tier 1
 
10.70
%
 
10.83
%
 
10.84
%
 
10.59
 %
 
13.37
 %
Tier 1 capital
 
10.70
%
 
10.83
%
 
10.84
%
 
10.59
 %
 
13.37
 %
Total capital
 
13.34
%
 
11.25
%
 
11.27
%
 
10.98
 %
 
13.93
 %
SmartBank:
 
Estimated1

 
 
 
 
 
 
 
 
Tier 1 leverage
 
10.08
%
 
10.43
%
 
10.17
%
 
11.26
 %
 
10.57
 %
Common equity Tier 1
 
11.65
%
 
11.41
%
 
11.12
%
 
10.90
 %
 
12.30
 %
Tier 1 risk-based capital
 
11.65
%
 
11.41
%
 
11.12
%
 
10.90
 %
 
12.30
 %
Total risk-based capital
 
12.06
%
 
11.83
%
 
11.56
%
 
11.30
 %
 
12.86
 %

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
 
 
September 30, 2018
 
June 30, 2018
 
March 31, 2018
 
December 31, 2017
 
September 30, 2017
Assets
 
 

 
 

 
 

 
 

 
 

Cash & cash equivalents
 
$
130,104

 
$
170,235

 
$
96,710

 
$
113,027

 
$
84,098

Securities available for sale
 
173,039

 
156,577

 
156,210

 
151,945

 
115,535

Other investments
 
10,735

 
8,273

 
7,808

 
6,431

 
6,081

Total loans
 
1,585,194

 
1,575,435

 
1,374,257

 
1,323,258

 
871,679

Allowance for loan losses
 
(7,156
)
 
(7,074
)
 
(6,477
)
 
(5,860
)
 
(5,393
)
Loans, net
 
1,578,038

 
1,568,361

 
1,367,780

 
1,317,398

 
866,286

Premises and equipment
 
52,427

 
52,203

 
44,202

 
43,000

 
33,778

Foreclosed assets
 
2,941

 
3,524

 
2,665

 
3,254

 
2,888

Goodwill and other intangibles
 
68,254

 
68,449

 
50,660

 
50,837

 
7,414

Cash surrender value of life insurance
 
22,088

 
21,944

 
21,797

 
21,647

 
11,484

Other assets
 
13,320

 
12,666

 
12,593

 
13,232

 
8,258

Total assets
 
$
2,050,946

 
$
2,062,232

 
$
1,760,425

 
$
1,720,771

 
$
1,135,822

 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 

 
 

 
 

 
 

 
 

Noninterest demand
 
$
301,197

 
$
301,318

 
$
276,249

 
$
220,520

 
$
185,386

Interest-bearing demand
 
267,146

 
246,942

 
278,965

 
231,644

 
156,953

Money market and savings
 
570,172

 
632,518

 
491,243

 
543,645

 
306,358

Time deposits
 
568,796

 
535,879

 
453,276

 
442,774

 
311,490

Total deposits
 
1,707,311

 
1,716,657

 
1,499,733

 
1,438,583

 
960,187

Repurchase agreements
 
16,787

 
18,635

 
15,968

 
24,055

 
26,542

FHLB & other borrowings
 
25,324

 
72,040

 
30,000

 
43,600

 
6,000

Subordinated debt
 
39,158

 

 

 

 

Other liabilities
 
10,724

 
7,413

 
5,775

 
8,681

 
6,505

Total liabilities
 
1,799,304

 
1,814,745

 
1,551,476

 
1,514,919

 
999,234

Shareholders' Equity
 
 
 
 
 
 
 
 
 
 
Common stock
 
12,750

 
12,705

 
11,234

 
11,152

 
8,243

Additional paid-in capital
 
208,999

 
208,513

 
174,981

 
174,009

 
107,065

Retained earnings
 
33,559

 
29,235

 
25,303

 
21,889

 
21,654

Accumulated other comprehensive loss
 
(3,666
)
 
(2,966
)
 
(2,569
)
 
(1,198
)
 
(374
)
Total shareholders' equity
 
251,642

 
247,487

 
208,949

 
205,852

 
136,588

Total liabilities & shareholders' equity
 
$
2,050,946

 
$
2,062,232

 
$
1,760,425

 
$
1,720,771

 
$
1,135,822





SmartFinancial, Inc. and Subsidiary
 
 
 
 
Condensed Consolidated Financial Information (unaudited)
 
 
(In thousands, except per share data)
 
 
 
 
INCOME STATEMENT
 
 
 
 
 
 
 
 
 
 
 
 
Three months ending
 
 
September 30, 2018
 
June 30, 2018
 
March 31, 2018
 
December 31, 2017
 
September 30, 2017
Interest Income
 
 
 
 
 
 
 
 
 
 
Loans, including fees
 
$
21,572

 
$
21,652

 
$
18,228

 
$
16,357

 
$
11,491

Investment securities and interest bearing due froms

 
1,326

 
1,198

 
1,049

 
770

 
740

Other interest income
 
170

 
144

 
101

 
117

 
86

Total interest income
 
23,068

 
22,993

 
19,378

 
17,244

 
12,317

Interest Expense
 
 
 
 
 
 
 
 
 
 
Deposits
 
3,968

 
3,238

 
2,401

 
1,806

 
1,373

Repurchase agreements
 
12

 
11

 
13

 
15

 
15

Subordinated debt
 
19

 

 

 

 

FHLB and other borrowings
 
209

 
207

 
153

 
81

 
5

Total interest expense
 
4,208

 
3,455

 
2,567

 
1,902

 
1,393

Net interest income
 
18,860

 
19,538

 
16,811

 
15,342

 
10,924

Provision for loan losses
 
302

 
617

 
689

 
442

 
30

Net interest income after provision for loan losses
 
18,558

 
18,921

 
16,122

 
14,900

 
10,894

Noninterest income
 
 
 
 
 
 
 
 
 
 
Service charges on deposit accounts
 
623

 
557

 
578

 
524

 
294

(Loss) gain on securities
 

 
(1
)
 

 

 
144

Gain on sale of loans and other assets
 
519

 
327

 
325

 
366

 
224

Interchange and debit card transaction fees
 
144

 
121

 
146

 
304

 
233

Other noninterest income
 
570

 
579

 
406

 
386

 
352

Total noninterest income
 
1,856

 
1,583

 
1,455

 
1,580

 
1,247

Noninterest expense
 
 
 
 
 
 
 
 
 
 
Salaries and employee benefits
 
7,934

 
7,649

 
7,176

 
6,272

 
5,035

Occupancy expense
 
1,638

 
1,522

 
1,533

 
1,217

 
1,114

FDIC premiums
 
158

 
317

 
102

 
150

 
102

Foreclosed asset expense
 
105

 
245

 
189

 
59

 
47

Marketing
 
228

 
215

 
185

 
167

 
177

Data processing
 
407

 
600

 
526

 
583

 
483

Professional expenses
 
922

 
918

 
898

 
602

 
472

Amortization of other intangibles
 
248

 
229

 
188

 
155

 
78

Service contracts
 
507

 
492

 
479

 
426

 
363

Merger expense
 
838

 
1,123

 
498

 
1,694

 
303

Other noninterest expense
 
1,800

 
1,968

 
1,448

 
1,242

 
1,400

Total noninterest expense
 
14,785

 
15,278

 
13,222

 
12,567

 
9,574

Earnings before income taxes
 
5,629

 
5,226

 
4,355

 
3,913

 
2,567

Income tax expense
 
1,305

 
1,295

 
940

 
3,875

 
882

Net income
 
$
4,324

 
$
3,931

 
$
3,415

 
$
38

 
$
1,685

 
 
 
 
 
 
 
 
 
 
 
NET INCOME PER COMMON SHARE
 
 
 
 
 
 
 
 
 
 
Basic
 
$
0.34

 
$
0.32

 
$
0.30

 
$

 
$
0.20

Diluted
 
0.34

 
0.32

 
0.30

 

 
0.20

 
 
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding
 
 
 
 
 
 
 
 
 
 
Basic
 
12,719

 
12,201

 
11,211

 
10,552

 
8,235

Diluted
 
12,817

 
12,320

 
11,324

 
10,709

 
8,333





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

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Loans
 
$
1,577,222

 
$
21,573

 
5.43
%
 
$
1,508,351

 
$
21,654

 
5.76
%
 
$
868,357

 
$
11,496

 
5.25
%
Investment securities and interest bearing due froms
 
232,041

 
1,361

 
2.33
%
 
211,587

 
1,218

 
2.31
%
 
142,467

 
757

 
2.11
%
Federal funds and other
 
13,033

 
170

 
5.17
%
 
9,616

 
144

 
6.01
%
 
31,864

 
86

 
1.07
%
Total interest-earning assets
 
1,822,296

 
23,104

 
5.03
%
 
1,729,554

 
23,016

 
5.34
%
 
1,042,305

 
12,339

 
4.70
%
Non-interest-earning assets
 
198,215

 
 

 
 

 
194,517

 
 
 
 
 
96,147

 
 

 
 

Total assets
 
$
2,020,511

 
 

 
 

 
$
1,924,071

 
 
 
 
 
$
1,138,452

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders’ Equity
 
 

 
 

 
 

 
 
 
 
 
 
 
 

 
 

 
 

Interest-bearing demand deposits
 
$
239,220

 
$
283

 
0.47
%
 
$
244,208

 
$
265

 
0.44
%
 
$
153,838

 
$
118

 
0.30
%
Money market and savings deposits
 
615,334

 
1,595

 
1.03
%
 
597,353

 
1,418

 
0.95
%
 
329,933

 
519

 
0.62
%
Time deposits
 
564,945

 
2,090

 
1.47
%
 
510,445

 
1,555

 
1.22
%
 
311,668

 
736

 
0.94
%
Total interest-bearing deposits
 
1,419,499

 
3,968

 
1.11
%
 
1,352,006

 
3,238

 
0.96
%
 
795,439

 
1,373

 
0.68
%
Securities sold under agreement to repurchase
 
17,694

 
12

 
0.27
%
 
15,643

 
11

 
0.28
%
 
20,589

 
15

 
0.29
%
Federal Home Loan Bank advances, sub debt and other borrowings
 
17,719

 
228

 
5.11
%
 
22,780

 
207

 
3.64
%
 
381

 
5

 
5.21
%
Total interest-bearing liabilities
 
1,454,912

 
4,208

 
1.15
%
 
1,390,429

 
3,455

 
1.00
%
 
816,409

 
1,393

 
0.68
%
Noninterest-bearing deposits
 
307,007

 
 

 
 

 
283,413

 
 
 
 
 
179,968

 
 

 
 

Other liabilities
 
8,529

 
 

 
 

 
16,944

 
 
 
 
 
5,978

 
 

 
 

Total liabilities
 
1,770,448

 
 

 
 

 
1,690,786

 
 
 
 
 
1,002,355

 
 

 
 

Shareholders’ equity
 
250,063

 
 

 
 

 
233,285

 
 
 
 
 
136,097

 
 

 
 

Total liabilities and stockholders’ equity
 
$
2,020,511

 
 

 
 

 
$
1,924,071

 
 
 
 
 
$
1,138,452

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income, taxable equivalent
 
 

 
$
18,896

 
 

 
 
 
$
19,561

 
 
 
 

 
$
10,946

 
 

Interest rate spread
 
 

 
 

 
3.88
%
 
 
 
 
 
4.34
%
 
 

 
 

 
4.02
%
Tax equivalent net interest margin
 
 

 
 

 
4.11
%
 
 
 
 
 
4.54
%
 
 

 
 

 
4.17
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percentage of average interest-earning assets to average interest-bearing liabilities
 
 

 
 

 
125.25
%
 
 
 
 
 
124.39
%
 
 

 
 

 
127.67
%
Percentage of  average equity to average assets
 
 

 
 

 
12.38
%
 
 
 
 
 
12.12
%
 
 

 
 

 
11.95
%

 
 

 
 

 
 

 
 
 
 
 
 
 
 

 
 

 
 

1 Taxable equivalent




SmartFinancial, Inc. and Subsidiary
 
 
 
 
Condensed Consolidated Financial Information (unaudited)
 
 
 
 
(In thousands)
 
 
 
 
NON-GAAP RECONCILIATIONS
 
Three months ending
 
 
September 30, 2018
 
June 30, 2018
 
March 31, 2018
 
December 31, 2017
 
September 30, 2017
Operating Earnings
 
 
 
 
 
 
 
 
 
 
Net income (GAAP)
 
$
4,324

 
$
3,931

 
$
3,415

 
$
38

 
$
1,685

Securities (gains) losses
 

 
1

 

 

 
(144
)
Merger expenses
 
838

 
1,123

 
498

 
1,694

 
303

Revaluation of deferred tax assets due to change in tax law
 

 

 

 
2,440

 

Income tax effect of adjustments
 
(196
)
 
(211
)
 
(103
)
 
(506
)
 
(25
)
Net operating earnings (Non-GAAP)
 
$
4,966

 
$
4,844

 
$
3,810

 
$
3,666

 
$
1,819

Net operating earnings per common share (Non-GAAP):
 
 
 
 
 
 
 
 
 
 
Basic
 
$
0.39

 
$
0.40

 
$
0.34

 
$
0.35

 
$
0.22

Diluted
 
0.39

 
0.39

 
0.34

 
0.34

 
0.22

 
 
 
 
 
 
 
 
 
 
 
Non-GAAP Return Ratios
 
 
 
 
 
 
 
 
 
 
Net operating return on average assets (Non-GAAP)1
 
0.98
 %
 
1.00
 %
 
0.89
 %
 
0.99
 %
 
0.63
 %
Return on average tangible common equity (Non-GAAP)2
 
9.44
 %
 
8.96
 %
 
8.10
 %
 
0.10
 %
 
5.20
 %
Net operating return on average shareholder equity (Non-GAAP)3
 
7.88
 %
 
8.33
 %
 
6.97
 %
 
7.98
 %
 
5.30
 %
Net operating return on average tangible common equity (Non-GAAP)4
 
10.84
 %
 
11.04
 %
 
9.04
 %
 
9.94
 %
 
5.61
 %
 
 
 
 
 
 
 
 
 
 
 
Operating Efficiency Ratio
 
 
 
 
 
 
 
 
 
 
Efficiency ratio (GAAP)
 
71.37
 %
 
72.34
 %
 
72.39
 %
 
74.26
 %
 
78.67
 %
Adjustment for taxable equivalent yields
 
(0.17
)%
 
(0.15
)%
 
(0.09
)%
 
(0.13
)%
 
(0.23
)%
Adjustment for securities gains (losses)
 
 %
 
(0.01
)%
 
 %
 
 %
 
1.54
 %
Adjustment for merger related costs
 
(3.99
)%
 
(7.35
)%
 
(3.76
)%
 
(13.48
)%
 
(3.26
)%
Operating efficiency ratio (Non-GAAP)
 
67.21
 %
 
64.82
 %
 
69.12
 %
 
60.64
 %
 
76.72
 %
 
 
 
 
 
 
 
 
 
 
 
Tangible Common Equity
 
 
 
 
 
 
 
 
 
 
Shareholders' equity (GAAP)
 
$
251,642

 
$
247,487

 
$
208,949

 
$
205,852

 
$
136,588

Less goodwill and other intangible assets
 
68,254

 
68,449

 
50,660

 
50,837

 
7,414

Tangible common equity (Non-GAAP)
 
$
183,388

 
$
179,037

 
$
158,289

 
$
155,015

 
$
129,174

 
 
 
 
 
 
 
 
 
 
 
Average Tangible Common Equity
 
 
 
 
 
 
 
 
 
 
Average shareholders' equity (GAAP)
 
$
250,063

 
$
233,285

 
$
221,711

 
$
184,295

 
$
136,097

Less average goodwill and other intangible assets
 
68,389

 
57,251

 
50,780

 
36,267

 
7,465

Average tangible common equity (Non-GAAP)
 
$
181,674

 
$
176,034

 
$
170,931

 
$
148,028

 
$
128,631


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 equity (non-GAAP) is the annualized net operating earnings (non-GAAP) divided by average equity.
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).

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Section 3: EX-99.2 (EXHIBIT 99.2)

smartfinancial3q18earnin
Third Quarter 2018 Earnings Call October 24, 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 the management of SmartFinancial, Inc. (“SmartFinancial”) regarding the company’s strategic direction, prospects, or future results or the benefits of the proposed merger with Foothills Bancorp, Inc. (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, Inc. (“Foothills Bancorp”), (4) the risk of successful integration of our business with that of Foothills Bancorp, (5) the amount of costs, fees, expenses, and charges related to the Foothills merger, (6) our ability to successfully integrate the businesses acquired as part of previous mergers with that of SmartBank, (7) reputational risk and the reaction of our customers and Foothills Bancorp’s customers to the Foothills merger, (8) the failure of the conditions to closing of the Foothills merger to be satisfied, (9) the risk that the integration of Foothills Bancorp’s business into our operations will be materially delayed or will be more costly or difficult than expected, (10) the possibility that the Foothills merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events, (11) the dilution caused by SmartFinancial’s issuance of additional shares of its common stock in the Foothills merger, (12) changes in management’s plans for the future, (13) prevailing economic and political conditions, particularly in our market areas, (14) credit risk associated with our lending activities, (15) changes in interest rates, loan demand, real estate values, and competition, (16) changes in accounting principles, policies, or guidelines, (17) changes in applicable laws, rules, or regulations, and (18) 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 Noncontained-GAAPinFinancialthis presentation,Measureswhich 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


 
Overview of SmartFinancial SmartFinancial, Inc. (Nasdaq: SMBK) is a $2.3 billion(1) asset bank holding company headquartered in Knoxville, Tennessee Nashville Branch FootprintKnoxville Greensboro Jonesboro 40 ARKANSAS Operates one subsidiary bank, SmartBank, which was founded TENNESSEE NORTH CAROLINA in January 2007 Memphis Chattanooga Located primarily in attractive, high-growth markets 77 throughout East Tennessee, Alabama and Florida Huntsville SOUTH 365 full-time employees 85 (1) (2) CAROLINA ~$331 million market capitalization Balance Sheet (9/30/18) (Standalone / Pro Atlanta (1) Forma ) Birmingham 20 Tuscaloosa GEORGIA Assets: $2.1 / $2.3 billion MISSISSIPPI ALABAMA Gross Loans: $1.6 / $1.7 billion Jackson Columbus 16 Montgomery Deposits: $1.7 / $1.9 billion Savannah Tangible Common Equity: $183 / $206 million Profitability (Q3 ’18) 65 75 95 Net Income / Operating Net Income: $4.3 million / $5.0 million Mobile ROAA / Operating ROAA: 0.85% / 0.98% Baton Rouge 10 ROE / Operating ROATCE: 6.86% / 10.84% Tallahassee SMBK Branch New Orleans FLORIDA Asset EfficiencyQualityRatio / Operating Efficiency Ratio: 71.37% / 67.21% Superior asset quality and proven credit culture NPAs / Assets of 0.27% NCOs / Average Loans of 0.06% Financial data as of or for the three months ended 9/30/18 (1) Pro forma for pending acquisition of Foothills Bancorp, Inc., as of 6/30/18 (2) Pricing data as of 10/18/18 Note: For a reconciliation of these non-GAAP financial measures to their most directly comparable GAAP measures see Appendix 3


 
Our History 1/8/07 8/20/15 2/29/16 5/19/17 11/1/17 6/27/18 Capstone SmartBank Announced ~$14.6mm Charter Cleveland,Completed TN / Bancshares,Completed acquisition Inc Announced opened first office private placement of combination of Acquisition of of proposed 10/19/12 8/31/15 Bradley County Foothills in Pigeon Forge, common stock SmartBank and branch . Bancorp,acquisition of Tennessee Cornerstone Cornerstone Inc. Community ($32mm GulfSouthPrivateFDIC-ass Bankisted BancsharesMerger,with Inc. acquisitionof Bank completed loans acquired) completed completed, pushing ($159mm assetsat SMBKpast 2007 2012closure) $1.0bn assetmark2015 2016 2017 2018 12/17/15 1/13/17 SmartBank(legacy) GulfSouth PrivateBank (1) Cornerstone Bancshares, Inc. SMBKlisted on Announced Cleveland, TNBranch CapstoneBancshares, Inc. Nasdaq Capital lift-out of Cleveland-based Tennessee Bancshares, Inc. Market bankingteam Foothills Bancorp, Inc. 1/18/17 5/1/18 Announced follow-on TennesseeCompleted acquisition Bancshares, of common equity Inc.Tullahoma, TN-based offering of ~$38mm 4


 
Culture building a culture Associates thrive empowered leaders core values We are critical part of ourwhereculture and are to be . The that we have established as a company help us operate in unison and have becomeCorea Values . Our Associates are key to SmartBank’s success. 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 ClientssolutionsandfasttheresponsesCommunities deepwe servecommitmentdrives 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 grow our franchise 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 223 1,004,349203,029 Foothills Bank & Trust Whole Bank - Knoxville, TN 2 3 184,944 Pro Forma SMBK Franchise 28 1,721,862 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 2Q2018 Core Deposits, adjusted to include 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 6 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


 
Third Quarter 2018 Earnings Call FINANCIAL HIGHLIGHTS


 
Third Quarter 2018 Highlights Net Income of $4.3 million for the quarter, up 157% from a year earlier, and Net Operating Earnings (Non-GAAP) of $5.0 million for the quarter, up 173% from a year earlier ROAA of 0.85% for the quarter and Net Operating ROAA (Non-GAAP) of 0.98% fully taxable equivalent “FTE” Net Interest Margin ( ) of 4.11%, down 6 basis points from a year earlier Nonperforming Assets were 0.27% of Total Assets Received investment grade debt rating by Kroll Bond Rating Agency Completed subordinated debt offering of $40 million All regulatory and shareholder approvals received for Foothills Bancorp, Inc. acquisition 10


 
Profitability Metrics ROAA (%) ROATCE (%) 11.0 % 10.8 % 1.20% 1.00 % 12.00% 0.98 % 9.4 % 0.89 % 9.0 % 9.0 % 0.85 % 0.81 % 8.1 % 0.77 % 0.80 % 10.00% 0.90% 6.9 %6.7 % 6.8 % 0.60 % 8.00% 0.57 % 0.42 % 0.60% 0.36 % 6.00% 3.9 % 2.7 % 0.22 % 4.00% 2.7 % 0.30% 2.00% 0.00% 0.00% Net Interest Margin (%) Efficiency Ratio (%) 4.54 % 85.0 % 4.75% 4.36 % 90.0 % 4.29 % 79.4 % 4.11 % 85.0 % 4.07 % 4.06 % 4.05 % 4.04 % 76.4 % 76.0 % 4.25% 3.94 % 80.0 % 75.2 % 3.80 % 3.84 % 3.85 % 72.4 % 72.3 % 71.4 % 70.6 % 69.1 % 75.0 % 67.2 % 3.75% 70.0 % 64.8 % 65.0 % 3.25% 60.0 % 55.0 % 2.75% 50.0 % (1)(2) Reported Operating (1) Operating profitability (non-GAAP) figures exclude gain on sale of securities, merger-related expenses and nonrecurring items (2) Operating net interest margin (non-GAAP) excludes purchase accounting adjustments Note: For a reconciliation of these non-GAAP financial measures to their most directly comparable GAAP measures, see the Appendix 11


 
Earnings Profile – Third Quarter 2018 3Q18 2Q18 3Q17 EPS increased 70% year over Total Interest Income $23,068 $22,993 $12,317 year (“YoY”) Total Interest Expense 4,208 3,455 1,393 Net Interest Income 18,860 19,538 10,924 Earnings Before Income Provision for Loan Losses 302 617 30 Taxes increased 123% YoY Net Interest Income After Provision for Loan Losses 18,558 18,921 10,894 Net Interest Income Total Noninterest Income 1,856 1,583 1,247 increased 73% YoY primarily Total Noninterest Expense 14,785 15,278 9,574 due to higher average Earnings Before Income Taxes 5,629 5,226 2,567 earning asset balances and Income Tax Expense 1,305 1,295 882 higher earning asset yields Net Income Available to Common Shareholders $4,324 $3,931 $1,685 Net Income Per Common Share Increases in Noninterest Basic $0.34 $0.32 $0.20 Expense primarily driven by Diluted $0.34 $0.32 $0.20 higher salary and occupancy Net Operating Earnings Per Common Share (Non-GAAP): expense from the Capstone Basic $0.39 $0.40 $0.22 Bancshares and Tennessee Diluted $0.39 $0.39 $0.22 Bancshares acquisitions, as well as merger expenses 12


 
Net Interest Income Net Interest Margin (FTE) decreased quarter to quarter primarily due to lower accretion on acquired loans Compared to a year ago, Earning Asset Yields are up 33 basis points; the Average Cost of Interest- bearing Liabilities are up 47 basis points Excluding the effect of purchase accounting adjustments, the Net Interest Margin (FTE) decreased 3Q18 2Q18 3Q17 Average Yields and Rates 9 basis points quarter to quarter 3Q18 2Q18 3Q17 Net Interest Income $18,860 $19,538 $10,924 Loans 5.43% 5.76% 5.25% Average Earning Assets $1,811,210 $1,718,162 $1,042,305 Investment Securities and Interest-bearing Due Net Interest Margin from Banks 2.33% 2.31% 2.11% Federal Funds and Other Investments 5.17% 6.01% 1.07% Earning Asset Yields 5.03% 5.34% 4.70% 4.75% Total Interest-bearing Deposits 1.11% 0.96% 0.68% 4.50% Securities Sold Under Agreement to Repurchase 0.27% 0.28% 0.29% Federal Home Loan Bank Advances and Other 4.25% Borrowings 5.11% 3.64% 5.21% 4.00% Total Interest-bearing Liabilities 1.15% 1.00% 0.68% 3.75% Net Interest Margin (FTE) 4.11% 4.54% 4.17% 3.50% Cost of Funds 0.94% 0.82% 0.55% 3Q17 4Q17 1Q18 2Q18 3Q18 Net Interest Margin (FTE) Net Interest Margin (FTE - ex Purchase Accounting Adj.) (Non-GAAP) 13


 
Noninterest Income 3Q18 Noninterest Income increased primarily due to increases in both service charge revenue and gain on sale of loans and other assets Quarterly Noninterest Income has trended higher over the last five quarters from approximately $1.2 million in 3Q17 to $1.9 million in 3Q18 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 3Q17 4Q17 1Q18 2Q18 3Q18 14


 
Noninterest Expense Efficiency Ratio decreased to 71.4%, the lowest of any quarter since the Cornerstone merger in 2015. Operating Efficiency Ratio (Non-GAAP) was 67.2%. Salary increases are primarily due to the addition of associates from the Tennessee Bancshares acquisition during the quarter. Merger expense of $0.8 million in the quarter. Noninterest Expense $20,000,000 80.0% 78.0% Merger expense $15,000,000 76.0% Other 74.0% Amortization of Intangibles $10,000,000 72.0% Data Processing 70.0% $5,000,000 Occupancy 68.0% Salaries & Benefits $0 66.0% Efficiency Ratio 3Q17 4Q17 1Q18 2Q18 3Q18 15


 
Balance Sheet 3Q18 2Q18 3Q17 Cash & Cash Equivalents $ 130,104 $ 170,235 $ 84,098 Assets roughly flat compared to 2Q18 Securities Available for Sale 173,039 156,577 115,535 Other Investments 10,736 8,273 6,081 Cash & Cash Equivalents declined over Total Loans 1,585,194 1,575,435 871,679 Allowance for Loan Losses (7,156) (7,074) (5,393) the quarter, offset by higher Securities Premises and Equipment 52,427 52,203 33,778 Available for Sale Foreclosed Assets 2,941 3,524 2,888 Goodwill and Other Intangibles 68,254 68,449 7,414 Cash Surrender Value of Life Insurance 22,088 21,944 11,484 Shift from Money Market and Savings to Other Assets 13,320 12,666 8,258 Interest-bearing Demand and Time Total Assets $ 2,050,946 $ 2,062,232 $ 1,135,822 Deposits, reduction in wholesale and Non-interest Demand $ 301,197 $ 301,318 $ 185,386 other high beta deposit accounts Interest-bearing Demand 267,146 246,942 156,953 Money Market and Savings 570,172 632,518 306,358 Time Deposits 568,796 535,879 311,490 Total Deposits 1,707,311 1,716,657 960,187 Repurchase Agreements 16,786 18,635 26,542 FHLB & Other Borrowings 25,324 72,040 6,000 Subordinated Debt 39,158 - - Other Liabilities 10,724 7,413 6,505 Total Liabilities 1,799,304 1,814,745 999,234 Total Shareholders' Equity 251,642 247,487 136,588 Total Liabilities & Shareholders' Equity $ 2,050,946 $ 2,062,232 $ 1,135,822 16


 
Attractive Deposit Mix Deposit Composition (9/30/18) Historical Deposit Composition ($mm) $2,000 $1,717 $1,707 $1,500 $1,500 $1,440 $536 $569 $453 $443 Cost of Interest- Bearing Deposits: $1,000 $908 $859 1.11% $633 $570 $491 $316 Historical Cost of Interest-Bearing Deposits $341 $544 $500 $275 $237 $279 $247 $267 $215 2.00% $150 $163 $240 $276 $301 $301 1.50% $131 $155 $0 2015 2016 2017 1Q18 2Q18 3Q18 1.00% 1.11% Noninterest Demand Interest-bearing Demand 0.96% Money Market and Savings Time Deposits 0.78% 0.50% 0.66% 0.52% 0.57% 0.00% 2015 2016 2017 1Q18 2Q18 3Q18 17


 
Overview of Loan Portfolio Loan Composition (9/30/18) Historical Loan Composition ($mm) $1,575 $1,585 $1,800 $1,374 $13 $1,600 $1,323 $15 $12 $1,400 $14 $356 $352 $1,200 $299 $293 $813 $728 $1,000 $386 $400 $8 $375 $362 $800 $6 $188 $161 $600 $360 $364 $289 $233 $281 $208 $400 $179 $166 $143 Loan Portfolio Amount ($mm) % of Total $162 $182 $135 $200 $105 $118 $239 $256 $279 $290 $86 $86 $0 C&I $290 18.3% 2015 2016 2017 1Q18 2Q18 3Q18 C&D 166 10.5% C&I C&D CRE, Owner Occupied 364 23.0% CRE, Owner Occupied CRE, Non Owner Occupied CRE, Non Owner Occupied 400 25.3% Residential RE Other Residential RE 352 22.2% OtherGross Loans & Leases $1,58513 100.0%0.8% 18


 
SmartBank 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 300 Ratio 150% 350% 125% 300% 100% 250% 75% 50% 200% 2015 2016 2017 2015 2016 2017 Q1 2018 Q1 2018 Q2 2018 Q3 Q1 2018 Q1 2018 Q2 2018 Q3 19


 
Asset Quality Excellent asset quality, with Nonperforming Assets at 0.27% of Total Assets Remaining fair value discounts on acquired loans are more than 2.7x 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% 3Q17 4Q17 1Q18 2Q18 3Q18 3Q17 4Q17 1Q18 2Q18 3Q18 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 20


 
Appendix


 
Non-GAAP Reconciliations 3Q18 2Q18 1Q18 4Q17 3Q17 Net interest income - ex purchase acct. adj. Net interest income (GAAP) $ 18,860 $ 19,538 $ 16,811 $ 15,342 $ 10,924 Taxable equivalent adjustment 36 16 22 21 21 Net interest income TEY 18,896 19,554 16,833 15,363 10,945 Purchase accounting adjustments 1,208 2,583 1,273 2,411 888 Net interest income -ex purchase acct. adj. (Non-GAAP) $ 17,688 $ 16,971 $ 15,560 $ 12,952 $ 10,057 Tangible Common Equity Shareholders' equity (GAAP) $ 251,642 $ 247,487 $ 208,949 $ 205,852 $ 136,588 Less goodwill and other intangible assets 68,254 68,449 50,660 50,837 7,414 Tangible Common Equity (Non-GAAP) $ 183,388 $ 179,038 $ 158,289 $ 155,015 $ 129,174 Non-GAAP Return Ratios (1) Net operating return on average assets (Non-GAAP) 0.98% 1.00% 0.89% 0.99% 0.63% (2) Return on average tangible common equity (Non-GAAP) 9.44% 8.96% 8.10% 0.10% 5.20% (3) Net operating return on average shareholder equity (Non-GAAP) 7.88% 8.33% 6.97% 7.98% 5.30% (4) Net operating return on average tangible common equity (Non-GAAP) 10.84% 11.04% 9.04% 9.94% 5.61% (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 equity (non-GAAP) is the annualized net operating earnings (non-GAAP) divided by average equity. (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). 22


 
Non-GAAP Reconciliations 3Q18 2Q18 1Q18 4Q17 3Q17 Operating Earnings Net income (GAAP) $ 4,324 $ 3,931 $ 3,415 $ 38 $ 1,685 Securities (gains) losses - 1 - - (144) Merger costs 838 1,123 498 1,694 303 Revaluation of deferred tax assets due to change in tax law - - - 2,482 - Income tax effect of adjustments (196) (211) (103) (506) (25) Net operating earnings available to common shareholders (Non-GAAP) $ 4,966 $ 4,844 $ 3,810 $ 3,707 $ 1,819 Net operating earnings per common share: Basic $0.39 $0.40 $0.34 $0.35 $0.22 OperatingDiluted Efficiency Ratio $0.39 $0.39 $0.34 $0.35 $0.22 Efficiency ratio (GAAP) 71.37% 72.34% 72.97% 74.25% 78.67% Adjustment for taxable equivalent yields (0.17%) (0.15%) (0.09%) (0.13%) (0.23%) Adjustment for securities gains (losses) - (0.01%) - - 1.54% Adjustment for merger expenses (3.99%) (7.35%) (3.76%) (13.48%) (3.26%) Operating efficiency ratio (Non-GAAP) 67.21% 64.82% 69.12% 60.64% 76.72% 23


 
SmartFinancial, Inc. Management Over 26 years in banking Over 15 years in banking Over 23 years in banking and Over 20 years in financial Led company from start-up in Responsible for driving key financial services services 2007 to over $2.0 billion in strategic initiatives and Responsible for driving M&A, Oversees the risk management assets today oversees the Board of investor relations, financial functions within the bank, Former EVP and Chief Directors analysis and development including audit, compliance Financial Officer of Citizens President of Welborn and management and loan review National Bank Associates, Inc.; Managing Former EVP and Chief Former Chief Financial Officer Partner of Foresight Holdings, Accounting Officer of BNC; and and Chief Operating Officer for LP; Former Partner – Lamp CFO of Square 1 Bank Cornerstone Community Bank Billy Carroll MillerPost Welborn Group Ron Gorczynski Gary Petty President & Chairman of the Chief Administrative Chief Risk Officer CEO Board Officer Over 16 years in financial Over 20 years in banking Over 30 years in financial Over 30 years in financial services Responsible for credit risk industry industry Responsible for finance and including credit underwriting, Oversees the commercial and Oversees the commercial and accounting policy and special assets consumer lending divisions retail deposit divisions Former investment advisor at Former SVP and East Former bank examiner for TN Former President & CEO of Moon Capital Management Tennessee Area Credit Officer Dep. of Financial Institutions; Southern Community Bank; of Regions Bank SVP and City Executive for District Manager for US Bank BB&T C. Bryan Johnson Rhett Jordan Greg Davis Bill Yoder Chief Financial Chief Credit Chief Lending Chief Banking and Officer Officer Officer Deposit Officer 24


 
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


 
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