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Section 1: 8-K (8-K SMARTFINANCIAL 2ND QUARTER 2019 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, 2019

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

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

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






Item 2.02
Results of Operations and Financial Condition.
 
On July 24, 2019, SmartFinancial, Inc. (SmartFinancial") issued a press release (the "Press Release") reporting earnings results for its second quarter ending June 30, 2019. A copy of the Press Release is attached hereto as Exhibit 99.1. 

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

Item 7.01
Regulation FD Disclosure.

SmartFinancial is filing an investor slide presentation that it intends to review in conjunction with its earnings release conference call on July 25, 2019. The slides are attached hereto as Exhibit 99.2.

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


Item 9.01
Financial Statements and Exhibits
Exhibit No.
Description
99.1
Press release announcing second quarter 2019 financial results dated July 24, 2019

99.2
Second quarter 2019 investor presentation






SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
SMARTFINANCIAL, INC.
 
 
Date: July 24, 2019
 
 
/s/ William Y. Carroll, Jr.
 
William Y. Carroll, Jr.
 
President & Chief Executive Officer





EXHIBIT INDEX 

Exhibit No.
 
Description
 
 
 
 
Press release announcing second quarter 2019 financial results dated July 24, 2019

 
Second quarter 2019 investor presentation




(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit


Exhibit 99.1
398880587_image001rgba05.jpg
 
2Q 2019
  
SmartFinancial Announces Earnings with Second Quarter 2019 Net Income of $9.1 million

Performance Highlights for Second Quarter of 2019

Return on average assets of 1.56 percent and net operating return on average assets (Non-GAAP) of 0.96%
Asset quality was outstanding with nonperforming assets of 0.17%
Recorded $6.4 million merger termination fee
Noninterest income to average assets of 1.44%, excluding merger termination fee, amounted to 0.35%
Noninterest-bearing demand deposit growth of 34.28% annualized
Completed departmental restructuring initiatives

KNOXVILLE, TN - July 24, 2019 - SmartFinancial, Inc. ("SmartFinancial"; NASDAQ: SMBK), today announced net income of $9.1 million for the second quarter of 2019, compared to $3.9 million for the second quarter of 2018. Diluted net income per share was $0.65 for the second quarter of 2019, compared to $0.32 during the second quarter of 2018. Net operating earnings (Non-GAAP), which excludes securities gains, merger termination fee and merger related and restructuring expenses, totaled $5.6 million in the second quarter of 2019 compared to $4.8 million in the second quarter of 2018.

Billy Carroll, President & CEO, stated: "This was a very solid quarter for our company.  We took advantage of a very positive earnings event, restructured our finance team and centralized our deposit operations, while showing strong core deposit growth and nice core earnings.  We are positioned well to continue building on our strong foundation."
 
SmartFinancial's Chairman, Miller Welborn, concluded: "I am very proud of where the bank is at the halfway mark of 2019. We are on track and executing our strategic plan. Our team has truly gelled and we are very excited about what the second half of the year holds as we continue to build value for our stakeholders."
 
Second Quarter 2019 compared to First Quarter 2019

Net income increased $4.4 million to $9.1 million for the second quarter of 2019, compared to $4.7 million for the first quarter of 2019 primarily due to a $6.4 million fee received in connection with the merger termination with Entegra Financial Corp. Diluted net income per share was $0.65 for the second quarter of 2019, compared to $0.34 during the first quarter of 2019. Net operating earnings (Non-GAAP) totaled $5.6 million in the second quarter of 2019 compared to $5.5 million in the previous quarter.

Net interest income for the second quarter of 2019 was $20.8 million, a decrease from $21.0 million for the first quarter of 2019. The tax equivalent net interest margin was 3.94% for the second quarter of 2019 compared to 4.10% for the first quarter of 2019. The tax equivalent average yield on interest-earning assets was 5.17% for the second quarter of 2019, a decrease from 5.25% for the first quarter of 2019, while the yield on interest-bearing liabilities increased to 1.54% for the second quarter of 2019 from 1.45% for the first quarter of 2019.

The yield on average loans was 5.53% for the second quarter of 2019 compared to 5.62% for the first quarter of 2019. The decrease in yield on average loans was due to lower discount accretion on acquired loans (30 basis points in the second quarter versus 42 basis points in the first quarter). For the second quarter of 2019, the yield on average loans, excluding accretion, increased 3 basis points to 5.23% from the first quarter of 2019. The cost of average interest-bearing deposits increased to 1.42% for the second quarter of 2019 from 1.32% for the first quarter of 2019. The increase was driven primarily from the continued competition for deposits.

Provision for loan losses was $393 thousand in the second quarter of 2019, compared to $797 thousand in the first quarter of 2019. The decrease in provision was primarily due to the larger provision recorded in the prior quarter from higher organic loan growth.

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The allowance for loan losses was $9.1 million, or 0.50% of total loans, as of June 30, 2019, compared to $8.7 million, or 0.47% of total loans, as of March 31, 2019.
 
Nonperforming loans as a percentage of total loans was 0.12% as of June 30, 2019, consistent with the 0.12% reported in the first quarter of 2019. Total nonperforming assets (which include nonaccrual loans, loans past due 90 days or more and still accruing, and other real estate owned) as a percentage of total assets was 0.17% as of June 30, 2019, compared to 0.18% as of March 31, 2019.
 
Noninterest income increased by $6.7 million to $8.4 million for the second quarter of 2019 compared to $1.7 million for the first quarter of 2019 primarily due to the $6.4 million merger termination fee, and to a lesser extent, increases in mortgage banking of $110 thousand and wealth revenue of $86 thousand. Noninterest income to average assets (excluding the $6.4 million merger termination fee) of .35% for the second quarter of 2019 increased from .30% in the first quarter of 2019.

Noninterest expense increased by $1.2 million to $16.8 million for the second quarter of 2019 compared to $15.6 million for the first quarter of 2019 including merger related and restructuring expenses of $1.8 million for the second quarter of 2019 compared to $923 thousand for the first quarter of 2019. Operating noninterest expense (excludes merger related and restructuring expenses) increased by $357 thousand to $15.0 million for the second quarter of 2019 compared to $14.6 million for the first quarter of 2019. This increase was primarily due to increases in personnel expense. Operating noninterest expense to average assets of 2.57% for the second quarter of 2019 decreased from 2.60% in the first quarter of 2019.

Income tax expense was $2.9 million in the second quarter of 2019 compared to $1.6 million in the first quarter of 2019. The overall effective tax rate was 24.1% for the second quarter of 2019 compared to 25.1% in the first quarter of 2019. The first quarter of 2019 included non-deductible merger related expenses which were subsequently deductible in the second quarter stemming from the acquisition termination.

Second Quarter 2019 compared to Second Quarter 2018

Net income increased by $5.2 million to $9.1 million for the second quarter of 2019 compared to $3.9 million for the second quarter of 2018 primarily due to $6.4 million fee received for the merger termination of Entegra Financial Corp and the operating effects of the Tennessee Bancshares, Inc. and Foothills Bancorp, Inc. acquisitions which were completed in the second and fourth quarters of 2018, respectively. Diluted net income per share was $0.65 for the second quarter of 2019, compared to $0.32 for the second quarter of 2018. Net operating earnings (Non-GAAP) totaled $5.6 million in the second quarter of 2019 compared to $4.8 million for the second quarter of 2018.

Net interest income for the second quarter of 2019 was $20.8 million, an increase from $19.5 million for the second quarter of 2018. The tax equivalent net interest margin was 3.94% for the second quarter of 2019 compared to 4.57% for the second quarter of 2018. The tax equivalent average yield on interest-earning assets was 5.17% for the second quarter of 2019 decreasing from 5.37% for the second quarter of 2018, while the yield on interest bearing liabilities increased to 1.54% for the second quarter of 2019 from 1.00% for the second quarter of 2018.

The yield on average loans was 5.53% for the second quarter of 2019 compared to 5.79% for the second quarter of 2018. The decrease in yield on average loans was primarily due to lower discount accretion on acquired loans (30 basis points in the second quarter of 2019 versus 68 basis points in the second quarter of 2018), offset by increases in yield of average loans of 12 basis points. For the second quarters of 2019 and 2018, the yield on average loans, excluding accretion, was 5.23% and 5.11%, respectively. The cost of average interest-bearing deposits increased to 1.42% for the second quarter of 2019 from 0.96% for the second quarter of 2018. This increase was due to increases in deposit rates from federal rate increases and increased competition.

Provision for loan losses was $393 thousand in the second quarter of 2019, compared to $617 thousand in the second quarter of 2018. The decrease in provision was primarily due to slower organic loan growth experienced during the second quarter of 2019 when compared to the second quarter of 2018. The allowance for loan losses was $9.1 million, or 0.50% of total loans, as of June 30, 2019, compared to $7.1 million, or 0.45% of total loans, as of June 30, 2018.

Nonperforming loans as a percentage of total loans was 0.12% as of June 30, 2019, a decrease from 0.14% in the prior year quarter. Total nonperforming assets (which include nonaccrual loans, loans past due 90 days or more and still accruing, and other real estate owned) as a percentage of total assets was 0.17% as of June 30, 2019, compared to 0.28% as of June 30, 2018.
 
Noninterest income increased by $6.8 million to $8.4 million for the second quarter of 2019 compared to $1.6 million for the second quarter of 2018 primarily due to the $6.4 million merger termination fee and to a lesser extent, increases in deposit services charges of $150 thousand, increases in mortgage banking of $71 thousand and wealth revenue of $112 thousand. Noninterest

398880587_image002rgba05.jpg



income to average assets (excluding the $6.4 million termination fee) of 0.35% for the second quarter of 2019 increased from 0.33% in the second quarter of 2018.

Noninterest expense increased by $1.5 million to $16.8 million for the second quarter of 2019 compared to $15.3 million for the second quarter of 2018 and included $1.8 million in merger related and restructuring expenses for the second quarter of 2019 compared to $1.1 million for the second quarter of 2018. Operating noninterest expense (excludes merger related and restructuring expenses) increased by $864 thousand to $15.0 million for the second quarter of 2019 compared to $14.1 million for the second quarter of 2018. This increase was primarily due to increases in personnel expense, as the second quarter of 2019 included the full effects of acquisitions completed during the prior reporting periods. Operating noninterest expense to average assets of 2.57% for the second quarter of 2019 decreased from 2.95% in the second quarter of 2018.

Income tax expense was $2.9 million in the second quarter of 2019 compared to $1.3 million in the second quarter of 2018. The overall effective tax rate was 24.1% for the second quarter of 2019 compared 24.8% for the second quarter of 2018.

Certain captions and amounts in the prior periods presented were reclassified to conform to the current presentation. Such reclassifications had no effect on net income or shareholders' equity.

Conference Call Information

SmartFinancial will to issue its earnings release for the second quarter of 2019 on Wednesday, July 24, 2019, and will host a conference call on Thursday, July 25, 2019 at 10:00 a.m. ET. To access this interactive teleconference, dial (888) 317-6003 or (412) 317-6061 and enter the confirmation number, 8611763. A replay of the conference call will be available through July 25, 2020, by dialing (877) 344-7529 or (412) 317-0088 and entering the confirmation number, 10133629. Conference call materials (earnings release & conference call presentation) will be published on the company’s webpage located at http://www.smartfinancialinc.com/CorporateProfile ), at 9:00 am ET prior to the conference call.

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About SmartFinancial, Inc.

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

Source
SmartFinancial, Inc.
 
Investor Contacts
Billy Carroll                        Ron Gorczynski
President & CEO                        Executive Vice President, Chief Financial Officer
(865) 868-0613 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 presentation include Non-GAAP financial measures and should be read along with the accompanying tables, which provide a reconciliation of Non-GAAP financial measures to GAAP financial measures. SmartFinancial management uses several Non-GAAP financial measures, including: (i) net operating earnings, (ii) net operating return on average assets, (iii) net operating return on average shareholder equity, (iv) return on average tangible common equity, (v) net operating return on average tangible common equity, (vi) operating efficiency ratio; (vii) tangible common equity; and (viii) average tangible common equity in its analysis of the company's performance. Net operating earnings excludes the following from net income: securities gains and losses, merger termination fee, merger related and restructuring expenses, the effect of the December, 2017 tax law change on deferred tax assets, tax benefit from director options previously exercised, and the income tax effect of adjustments. Net operating return on average equity is the annualized net operating earnings divided by average assets. Net operating return on average equity is the annualized net operating earnings divided by average equity. Return on average tangible common equity is the annualized net income divided by average tangible common equity. Net operating return on average tangible common equity is the annualized net operating earnings divided by average tangible common equity (Non-GAAP). The operating efficiency ratio includes an adjustment for taxable equivalent yields and excludes securities gains and losses and merger related and restructuring expenses from the efficiency ratio. Tangible common equity and average tangible common equity excludes goodwill and other intangible assets. 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

This news release may contain statements that are based on management’s current estimates or expectations of future events or future results, and that may be deemed to constitute forward-looking statements as defined under U.S. federal securities laws. These statements are not historical in nature and can generally be identified by such words as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “may,” “estimate,” and similar expressions. All forward-looking statements are subject to risks, uncertainties, and other factors that may cause the actual results of SmartFinancial to differ materially from future results expressed or implied by such forward-looking statements. Such risks, uncertainties, and other factors include, among others, (1) the risk of litigation related to the termination of our agreement and plan of merger with Entegra Financial Corp. (the “Entegra Merger Agreement”) or the abandonment of the transactions that were contemplated by the Entegra Merger Agreement; (2) reputational risk resulting from the termination of the Entegra Merger Agreement; (3) potential changes to, or the risk that we may not be able to execute on, our business strategy as a result of the termination of the Entegra Merger Agreement; (4) the risk that cost savings and revenue synergies from recently completed acquisitions may not be realized or may take longer than anticipated to realize, (5) disruption from recently completed acquisitions with customer, supplier, employee, or other business relationships, (6) our ability to successfully integrate the businesses acquired as part of previous acquisitions with the business of SmartBank, (7) changes in management’s plans for the future, (8) prevailing, or changes in, economic or political conditions, particularly in our market areas, (9) credit risk associated with our lending activities, (10) changes in interest rates, loan demand, real estate values, or competition, (11) changes in accounting principles, policies, or guidelines, (12) changes in applicable laws, rules, or regulations, and (13) other general competitive, economic, political, and market factors, including those affecting our business, operations, pricing, products, or services. These and other factors that could cause results to differ materially from those described in the forward-looking statements can be found in SmartFinancial’s most recent annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, in each case filed with or furnished to the Securities and Exchange Commission (the “SEC”) and available on the SEC’s website (www.sec.gov). Undue reliance should not be placed on forward-looking statements. SmartFinancial disclaims any obligation to update or revise any forward-looking statements contained in this release, which speak only as of the date hereof, whether as a result of new information, future events, or otherwise.

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SmartFinancial, Inc. and Subsidiary
 
 
 
 
Condensed Consolidated Financial Information (unaudited)
 
 
 
 
(In thousands except share and per share data)
 
 
 
 
 
 
As of and for The Three Months Ended
 
 
June 30, 2019
 
March 31, 2019
 
December 31, 2018
 
September 30, 2018
 
June 30, 2018
Selected Performance Ratios (Annualized)
 
 
 
 
 
 
 
 
 
 
Return on average assets
 
1.56
%
 
0.84
%
 
1.17
%
 
0.85
%
 
0.82
%
Return on average shareholder equity
 
12.34
%
 
6.71
%
 
9.44
%
 
6.86
%
 
6.76
%
Return on average tangible common equity (Non-GAAP)¹
 
16.78
%
 
9.26
%
 
13.09
%
 
9.45
%
 
8.96
%
Noninterest income / average assets
 
1.44
%
 
0.30
%
 
0.31
%
 
0.36
%
 
0.33
%
Noninterest expense / average assets
 
2.88
%
 
2.77
%
 
2.84
%
 
2.90
%
 
3.15
%
Efficiency ratio
 
57.53
%
 
68.65
%
 
67.71
%
 
71.33
%
 
72.34
%
Net operating return on average assets (Non-GAAP)¹
 
0.96
%
 
0.98
%
 
1.07
%
 
0.98
%
 
1.00
%
Net operating return on average shareholder equity (Non-GAAP)¹
 
7.58
%
 
7.81
%
 
8.65
%
 
7.88
%
 
8.33
%
Net operating return on average tangible common equity (Non-GAAP)¹
 
10.31
%
 
10.79
%
 
12.00
%
 
10.84
%
 
11.04
%
Operating efficiency ratio (Non-GAAP)¹
 
65.56
%
 
64.25
%
 
61.72
%
 
67.17
%
 
66.92
%
Yield on loans
 
5.53
%
 
5.62
%
 
5.81
%
 
5.43
%
 
5.79
%
Yield on earning assets, FTE
 
5.17
%
 
5.25
%
 
5.36
%
 
5.03
%
 
5.37
%
Cost of interest-bearing deposits
 
1.42
%
 
1.32
%
 
1.21
%
 
1.11
%
 
0.96
%
Cost of total deposits
 
1.18
%
 
1.10
%
 
1.00
%
 
0.91
%
 
0.79
%
Cost of interest-bearing liabilities
 
1.54
%
 
1.45
%
 
1.33
%
 
1.15
%
 
1.00
%
Net interest margin, FTE
 
3.94
%
 
4.10
%
 
4.28
%
 
4.11
%
 
4.57
%
Per Common Share
 
 
 
 
 
 
 
 
 
 
Net income, basic
 
$
0.65

 
$
0.34

 
$
0.48

 
$
0.34

 
$
0.32

Net income, diluted
 
0.65

 
0.34

 
0.47

 
0.34

 
0.32

Net operating earnings, basic (Non-GAAP)¹
 
0.40

 
0.40

 
0.44

 
0.39

 
0.40

Net operating earnings, diluted (Non-GAAP)¹
 
0.40

 
0.39

 
0.43

 
0.39

 
0.39

Book value
 
21.47

 
20.82

 
20.31

 
19.74

 
19.48

Tangible book value (Non-GAAP)¹
 
15.86

 
15.18

 
14.64

 
14.38

 
14.09

Common shares outstanding
 
13,953

 
13,952

 
13,934

 
12,750

 
12,705

 
 
 
 
 
 
 
 
 
 
 
¹See reconciliation of Non-GAAP measures
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SmartFinancial, Inc. and Subsidiary
 
 
 
 
Condensed Consolidated Financial Information (unaudited)
 
 
 
 
(In thousands)
 
 
 
 
 
 
As of and for The Three Months Ended
 
 
June 30, 2019
 
March 31, 2019
 
December 31, 2018
 
September 30, 2018
 
June 30, 2018
Composition of Loans
 
 
 
 
 
 
 
 
 
 
Commercial real estate
 
 
 
 
 
 
 
 
 
 
owner occupied
 
$
415,502

 
$
416,152

 
$
372,030

 
$
364,164

 
$
360,294

non-owner occupied
 
464,160

 
472,790

 
487,997

 
401,922

 
385,570

Commercial real estate, total
 
879,662

 
888,942

 
860,027

 
766,086

 
745,864

Commercial & industrial
 
334,258

 
341,471

 
308,254

 
289,784

 
279,771

Construction & land development
 
204,731

 
187,009

 
187,895

 
165,906

 
179,431

Consumer real estate
 
406,357

 
410,981

 
407,254

 
350,422

 
355,876

Consumer and other
 
11,981

 
12,166

 
13,809

 
12,996

 
14,493

Total loans
 
$
1,836,989

 
$
1,840,569

 
$
1,777,239

 
$
1,585,194

 
$
1,575,435

 
 
 
 
 
 
 
 
 
 
 
Asset Quality and Additional Loan Data
 
 
 
 
 
 
 
 
 
 
Nonperforming loans
 
$
2,148

 
$
2,282

 
$
3,280

 
$
2,686

 
$
2,205

Other real estate owned
 
1,814

 
2,066

 
2,495

 
4,230

 
3,524

Total nonperforming assets
 
$
3,962

 
$
4,348

 
$
5,775

 
$
6,916

 
$
5,729

Restructured loans not included in nonperforming loans
 
$
62

 
$
62

 
$
116

 
$
693

 
$
660

Net charge-offs (recoveries) to average loans (annualized)
 
0.00
%
 
0.08
%
 
0.04
%
 
0.06
%
 
0.02
%
Allowance for loan losses to loans
 
0.50
%
 
0.47
%
 
0.47
%
 
0.45
%
 
0.45
%
Nonperforming loans to total loans, gross
 
0.12
%
 
0.12
%
 
0.18
%
 
0.17
%
 
0.14
%
Nonperforming assets to total assets
 
0.17
%
 
0.18
%
 
0.25
%
 
0.34
%
 
0.28
%
Acquisition accounting discounts on loans
 
18,571

 
19,954

 
21,528

 
19,500

 
20,748

Accretion income on acquired loans
 
1,374

 
1,881

 
2,755

 
1,208

 
2,583

 
 
 
 
 
 
 
 
 
 
 
Capital Ratios
 
 
 
 
 
 
 
 
 
 
Equity to Assets
 
12.53
%
 
12.34
%
 
12.44
%
 
12.27
%
 
12.00
%
Tangible equity to tangible assets (Non-GAAP)
 
9.57
%
 
9.31
%
 
9.29
%
 
9.25
%
 
8.98
%
Tangible common equity to tangible assets (Non-GAAP)
 
9.57
%
 
9.31
%
 
9.29
%
 
9.25
%
 
8.98
%
SmartFinancial, Inc.:
 
Estimated1

 
 
 
 
 
 
 
 
Tier 1 leverage
 
9.92
%
 
9.29
%
 
9.47
%
 
9.26
%
 
9.82
%
Common equity Tier 1
 
11.21
%
 
10.61
%
 
10.81
%
 
10.88
%
 
10.83
%
Tier 1 capital
 
11.21
%
 
10.61
%
 
10.81
%
 
10.88
%
 
10.83
%
Total capital
 
13.62
%
 
13.01
%
 
13.29
%
 
13.57
%
 
11.25
%
SmartBank:
 
Estimated1

 
 
 
 
 
 
 
 
Tier 1 leverage
 
10.92
%
 
10.96
%
 
11.17
%
 
10.55
%
 
10.43
%
Common equity Tier 1
 
12.34
%
 
12.18
%
 
12.31
%
 
11.99
%
 
11.41
%
Tier 1 risk-based capital
 
12.34
%
 
12.18
%
 
12.31
%
 
11.99
%
 
11.41
%
Total risk-based capital
 
12.80
%
 
12.62
%
 
12.74
%
 
12.40
%
 
11.83
%

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, 2019
 
March 31, 2019
 
December 31, 2018
 
September 30, 2018
 
June 30, 2018
Assets
 
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
 
$
199,534

 
$
132,994

 
$
115,822

 
$
130,104

 
$
170,235

Securities available-for-sale, at fair value
 
174,114

 
198,273

 
201,688

 
173,039

 
156,577

Other investments
 
12,905

 
12,398

 
11,499

 
10,736

 
8,273

Loans held for sale
 
4,087

 
2,103

 
1,979

 
4,038

 
4,948

Loans
 
1,832,902

 
1,838,466

 
1,775,260

 
1,581,155

 
1,570,487

 Less: Allowance for loan losses
 
(9,097
)
 
(8,704
)
 
(8,275
)
 
(7,156
)
 
(7,074
)
 Loans, net
 
1,823,805

 
1,829,762

 
1,766,985

 
1,573,999

 
1,563,413

Premises and equipment, net
 
56,589

 
56,583

 
56,012

 
51,138

 
52,203

Other real estate owned
 
1,814

 
2,066

 
2,495

 
4,230

 
3,524

Goodwill and core deposit intangibles, net
 
78,348

 
78,690

 
79,034

 
68,254

 
68,449

Bank owned life insurance
 
24,695

 
24,540

 
24,381

 
22,088

 
21,944

Other assets
 
15,366

 
16,572

 
14,514

 
13,320

 
12,666

Total assets
 
$
2,391,257

 
$
2,353,981

 
$
2,274,409

 
$
2,050,946

 
$
2,062,232

 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 

 
 

 
 

 
 

 
 

Deposits:
 
 
 
 
 
 
 
 
 
 
  Noninterest-bearing demand
 
$
357,220

 
$
329,095

 
$
319,861

 
$
301,197

 
$
301,318

  Interest-bearing demand
 
333,705

 
331,629

 
311,482

 
267,146

 
246,942

  Money market and savings
 
648,132

 
698,431

 
641,945

 
570,172

 
632,518

  Time deposits
 
673,243

 
635,175

 
648,675

 
568,796

 
535,879

  Total deposits
 
2,012,300

 
1,994,330

 
1,921,964

 
1,707,311

 
1,716,658

Securities sold under agreements to repurchase
 
8,219

 
7,070

 
11,756

 
16,786

 
18,635

FHLB & other borrowings
 
15,460

 
8,605

 
11,243

 
25,324

 
72,040

Subordinated debt
 
39,219

 
39,198

 
39,177

 
39,158

 

Other liabilities
 
16,447

 
14,297

 
7,258

 
10,724

 
7,413

Total liabilities
 
2,091,645

 
2,063,500

 
1,991,398

 
1,799,304

 
1,814,745

Shareholders' Equity
 
 
 
 
 
 
 
 
 
 
Common stock
 
13,953

 
13,952

 
13,934

 
12,750

 
12,705

Additional paid-in capital
 
232,386

 
232,241

 
231,852

 
208,999

 
208,513

Retained earnings
 
53,843

 
44,722

 
39,991

 
33,559

 
29,235

Accumulated other comprehensive loss
 
(571
)
 
(434
)
 
(2,765
)
 
(3,666
)
 
(2,966
)
Total shareholders' equity
 
299,611

 
290,481

 
283,011

 
251,642

 
247,487

Total liabilities & shareholders' equity
 
$
2,391,257

 
$
2,353,981

 
$
2,274,409

 
$
2,050,946

 
$
2,062,232





SmartFinancial, Inc. and Subsidiary
 
 
 
 
Condensed Consolidated Financial Information (unaudited)
 
 
(In thousands, except per share data)
 
 
 
 
INCOME STATEMENT
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
 
June 30, 2019
 
March 31, 2019
 
December 31, 2018
 
September 30, 2018
 
June 30, 2018
Interest income
 
 
 
 
 
 
 
 
 
 
Loans, including fees
 
$
25,278

 
$
24,975

 
$
25,018

 
$
21,572

 
$
21,652

Securities available-for-sale:
 
 
 
 
 
 
 
 
 
 
 Taxable
 
871

 
971

 
900

 
839

 
897

 Tax-exempt
 
411

 
424

 
347

 
129

 
76

Federal funds sold and other earning assets
 
743

 
573

 
506

 
527

 
367

Total interest income
 
27,303

 
26,943

 
26,771

 
23,068

 
22,993

Interest expense
 
 
 
 
 
 
 
 
 
 
Deposits
 
5,788

 
5,251

 
4,680

 
3,969

 
3,238

Securities sold under agreements to repurchase
 
6

 
8

 
9

 
11

 
11

FHLB advances and other borrowings
 
117

 
103

 
51

 
209

 
207

Subordinated debt
 
590

 
584

 
584

 
19

 

Total interest expense
 
6,501

 
5,945

 
5,324

 
4,208

 
3,455

Net interest income
 
20,802

 
20,997

 
21,447

 
18,860

 
19,538

Provision for loan losses
 
393

 
797

 
1,329

 
302

 
617

Net interest income after provision for loan losses
 
20,409

 
20,200

 
20,117

 
18,558

 
18,921

Noninterest income
 
 
 
 
 
 
 
 
 
 
Service charges on deposit accounts
 
707

 
654

 
663

 
624

 
557

Gain (loss) on sale of securities, net
 
33

 

 
2

 

 
(1
)
Mortgage banking
 
392

 
282

 
251

 
493

 
322

Interchange and debit card transaction fees
 
143

 
175

 
162

 
144

 
121

Other
 
7,140

 
587

 
601

 
570

 
579

Total noninterest income
 
8,415

 
1,698

 
1,680

 
1,831

 
1,577

Noninterest expense
 
 
 
 
 
 
 
 
 
 
Salaries and employee benefits
 
8,984

 
8,398

 
7,871

 
7,934

 
7,649

Occupancy and equipment
 
1,658

 
1,640

 
1,610

 
1,638

 
1,522

FDIC insurance
 
180

 
179

 
209

 
158

 
317

Other real estate and loan related expense
 
242

 
490

 
738

 
578

 
926

Advertising and marketing
 
259

 
295

 
246

 
228

 
215

Data processing
 
577

 
615

 
372

 
407

 
600

Professional services
 
489

 
662

 
707

 
727

 
587

Amortization of intangibles
 
342

 
344

 
312

 
248

 
229

Software as service contracts
 
568

 
567

 
577

 
507

 
492

Merger related and restructuring expenses
 
1,796

 
923

 
1,322

 
838

 
1,123

Other
 
1,714

 
1,467

 
1,696

 
1,496

 
1,613

Total noninterest expense
 
16,808

 
15,579

 
15,661

 
14,759

 
15,272

Income before income taxes
 
12,016

 
6,319

 
6,137

 
5,630

 
5,226

Income tax expense
 
2,895

 
1,588

 
(307
)
 
1,305

 
1,295

Net income
 
$
9,121

 
$
4,731

 
$
6,444

 
$
4,325

 
$
3,932

Earnings Per Common Share
 
 
 
 
 
 
 
 
 
 
Basic
 
$
0.65

 
$
0.34

 
$
0.48

 
$
0.34

 
$
0.32

Diluted
 
0.65

 
0.34

 
0.47

 
0.34

 
0.32

Weighted average common shares outstanding
 
 
 
 
 
 
 
 
 
 
Basic
 
13,952

 
13,942

 
13,535

 
12,719

 
12,201

Diluted
 
14,047

 
14,018

 
13,617

 
12,818

 
12,320





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

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Loans
 
$
1,832,639

 
$
25,278

 
5.53
%
 
$
1,802,014

 
$
24,977

 
5.62
%
 
$
1,501,008

 
$
21,654

 
5.79
%
Taxable securities
 
136,859

 
871

 
2.55
%
 
147,346

 
971

 
2.67
%
 
149,169

 
898

 
2.41
%
Tax-exempt securities
 
56,475

 
527

 
3.75
%
 
53,492

 
537

 
4.07
%
 
11,698

 
96

 
3.29
%
Federal funds sold and other earning assets
 
102,253

 
743

 
2.91
%
 
86,688

 
573

 
2.68
%
 
56,287

 
368

 
2.62
%
Total interest-earning assets
 
2,128,226

 
27,419

 
5.17
%
 
2,089,540

 
27,058

 
5.25
%
 
1,718,162

 
23,016

 
5.37
%
Noninterest-earning assets
 
215,010

 
 

 
 

 
193,698

 
 
 
 
 
205,909

 
 

 
 

Total assets
 
$
2,343,236

 
 

 
 

 
$
2,283,238

 
 
 
 
 
$
1,924,071

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders’ Equity
 
 

 
 

 
 

 
 
 
 
 
 
 
 

 
 

 
 

Interest-bearing demand deposits
 
$
329,556

 
$
464

 
0.57
%
 
$
306,164

 
$
474

 
0.63
%
 
$
244,208

 
$
265

 
0.44
%
Money market and savings deposits
 
673,502

 
2,272

 
1.35
%
 
665,018

 
1,978

 
1.21
%
 
597,353

 
1,418

 
0.95
%
Time deposits
 
629,480

 
3,052

 
1.94
%
 
637,767

 
2,799

 
1.78
%
 
510,445

 
1,555

 
1.22
%
Total interest-bearing deposits
 
1,632,538

 
5,788

 
1.42
%
 
1,608,949

 
5,251

 
1.32
%
 
1,352,006

 
3,238

 
0.96
%
Securities sold under agreement to repurchase
 
7,249

 
6

 
0.33
%
 
7,971

 
8

 
0.41
%
 
15,643

 
11

 
0.28
%
Federal funds purchased and other borrowings
 
16,436

 
117

 
2.87
%
 
10,217

 
103

 
4.09
%
 
22,780

 
206

 
3.63
%
Subordinated debt
 
39,205

 
590

 
6.03
%
 
39,184

 
584

 
6.04
%
 

 

 
 
Total interest-bearing liabilities
 
1,695,428

 
6,501

 
1.54
%
 
1,666,321

 
5,946

 
1.45
%
 
1,390,429

 
3,455

 
1.00
%
Noninterest-bearing deposits
 
336,871

 
 

 
 

 
320,134

 
 
 
 
 
283,413

 
 

 
 

Other liabilities
 
14,367

 
 

 
 

 
10,707

 
 
 
 
 
16,944

 
 

 
 

Total liabilities
 
2,046,666

 
 

 
 

 
1,997,162

 
 
 
 
 
1,690,786

 
 

 
 

Stockholders’ equity
 
296,570

 
 

 
 

 
286,076

 
 
 
 
 
233,285

 
 

 
 

Total liabilities and stockholders’ equity
 
$
2,343,236

 
 

 
 

 
$
2,283,238

 
 
 
 
 
$
1,924,071

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income, taxable equivalent
 
 

 
$
20,918

 
 

 
 
 
$
21,112

 
 
 
 

 
$
19,561

 
 

Interest rate spread
 
 

 
 

 
3.63
%
 
 
 
 
 
3.80
%
 
 

 
 

 
4.38
%
Tax equivalent net interest margin
 
 

 
 

 
3.94
%
 
 
 
 
 
4.10
%
 
 

 
 

 
4.57
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percentage of average interest-earning assets to average interest-bearing liabilities
 
 

 
 

 
125.53
%
 
 
 
 
 
125.40
%
 
 

 
 

 
123.53
%
Percentage of  average equity to average assets
 
 

 
 

 
12.66
%
 
 
 
 
 
12.53
%
 
 

 
 

 
12.00
%

 
 

 
 

 
 

 
 
 
 
 
 
 
 

 
 

 
 

1 Taxable equivalent




SmartFinancial, Inc. and Subsidiary
 
 
 
 
Condensed Consolidated Financial Information (unaudited)
 
 
 
 
(In thousands)
 
 
 
 
NON-GAAP RECONCILIATIONS
 
Three Months Ended
 
 
June 30, 2019
 
March 31, 2019
 
December 31, 2018
 
September 30, 2018
 
June 30, 2018
Operating Earnings
 
 
 
 
 
 
 
 
 
 
Net income (GAAP)
 
$
9,121

 
$
4,731

 
$
6,444

 
$
4,324

 
$
3,931

Securities (gains) losses
 
(33
)
 

 
(2
)
 

 
1

Merger termination fee
 
(6,400
)
 

 

 

 

Merger related and restructuring expenses
 
1,796

 
923

 
1,322

 
838

 
1,123

Revaluation of deferred tax assets due to change in tax law
 

 

 
(1,600
)
 

 

Income tax effect of adjustments
 
1,120

 
(145
)
 
(256
)
 
(196
)
 
(211
)
Net operating earnings (Non-GAAP)
 
$
5,603

 
$
5,509

 
$
5,908

 
$
4,966

 
$
4,844

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

 
$
0.40

 
$
0.44

 
$
0.39

 
$
0.40

Diluted
 
0.40

 
0.39

 
0.43

 
0.39

 
0.39

 
 
 
 
 
 
 
 
 
 
 
Non-GAAP Return Ratios
 
 
 
 
 
 
 
 
 
 
Net operating return on average assets (Non-GAAP)1
 
0.96
 %
 
0.98
 %
 
1.07
 %
 
0.98
 %
 
1.00
 %
Return on average tangible common equity (Non-GAAP)2
 
16.78
 %
 
9.26
 %
 
13.09
 %
 
9.45
 %
 
8.96
 %
Net operating return on average shareholder equity (Non-GAAP)3
 
7.58
 %
 
7.81
 %
 
8.65
 %
 
7.88
 %
 
8.33
 %
Net operating return on average tangible common equity (Non-GAAP)4
 
10.31
 %
 
10.79
 %
 
12.00
 %
 
10.84
 %
 
11.04
 %
 
 
 
 
 
 
 
 
 
 
 
Operating Efficiency Ratio
 
 
 
 
 
 
 
 
 
 
Efficiency ratio (GAAP)
 
57.53
 %
 
68.65
 %
 
67.71
 %
 
71.34
 %
 
72.31
 %
Adjustment for taxable equivalent yields
 
(0.50
)%
 
(0.49
)%
 
(0.45
)%
 
(0.18
)%
 
(0.11
)%
Adjustment for securities gains (losses)
 
0.14
 %
 
 %
 
0.01
 %
 
 %
 
(0.01
)%
Adjustment for merger related income and costs
 
8.39
 %
 
(3.91
)%
 
(5.55
)%
 
(3.99
)%
 
(5.28
)%
Operating efficiency ratio (Non-GAAP)
 
65.56
 %
 
64.25
 %
 
61.72
 %
 
67.17
 %
 
66.92
 %
 
 
 
 
 
 
 
 
 
 
 
Tangible Common Equity
 
 
 
 
 
 
 
 
 
 
Shareholders' equity (GAAP)
 
$
299,611

 
$
290,481

 
$
283,011

 
$
251,642

 
$
247,487

Less goodwill and other intangible assets
 
78,348

 
78,690

 
79,034

 
68,254

 
68,449

Tangible common equity (Non-GAAP)
 
$
221,264

 
$
211,791

 
$
203,977

 
$
183,388

 
$
179,036

 
 
 
 
 
 
 
 
 
 
 
Average Tangible Common Equity
 
 
 
 
 
 
 
 
 
 
Average shareholders' equity (GAAP)
 
$
296,570

 
$
286,076

 
$
270,884

 
$
250,063

 
$
233,285

Less average goodwill and other intangible assets
 
78,564

 
78,913

 
75,547

 
68,389

 
57,251

Average tangible common equity (Non-GAAP)
 
$
218,006

 
$
207,163

 
$
195,337

 
$
181,674

 
$
176,034


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).

(Back To Top)

Section 3: EX-99.2 (EXHIBIT 99.2)

smartfinancial2q19earnin
Second Quarter 2019 Earnings Release July 24, 2019


 
Legal Disclaimer Forward-Looking Statements This news release may contain statements that are based on management’s current estimates or expectations of future events or future results, and that may be deemed to constitute forward-looking statements as defined under U.S. federal securities laws. These statements are not historical in nature and can generally be identified by such words as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “may,” “estimate,” and similar expressions. All forward- looking statements are subject to risks, uncertainties, and other factors that may cause the actual results of SmartFinancial to differ materially from future results expressed or implied by such forward-looking statements. Such risks, uncertainties, and other factors include, among others, (1) the risk of litigation related to the termination of our agreement and plan of merger with Entegra Financial Corp. (the “Entegra Merger Agreement”) or the abandonment of the transactions that were contemplated by the Entegra Merger Agreement; (2) reputational risk resulting from the termination of the Entegra Merger Agreement; (3) potential changes to, or the risk that we may not be able to execute on, our business strategy as a result of the termination of the Entegra Merger Agreement; (4) the risk that cost savings and revenue synergies from recently completed acquisitions may not be realized or may take longer than anticipated to realize, (5) disruption from recently completed acquisitions with customer, supplier, employee, or other business relationships, (6) our ability to successfully integrate the businesses acquired as part of previous acquisitions with the business of SmartBank, (7) changes in management’s plans for the future, (8) prevailing, or changes in, economic or political conditions, particularly in our market areas, (9) credit risk associated with our lending activities, (10) changes in interest rates, loan demand, real estate values, or competition, (11) changes in accounting principles, policies, or guidelines, (12) changes in applicable laws, rules, or regulations, and (13) other general competitive, economic, political, and market factors, including those affecting our business, operations, pricing, products, or services. These and other factors that could cause results to differ materially from those described in the forward-looking statements can be found in SmartFinancial’s most recent annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, in each case filed with or furnished to the Securities and Exchange Commission (the “SEC”) and available on the SEC’s website (www.sec.gov). Undue reliance should not be placed on forward-looking statements. SmartFinancial disclaims any obligation to update or revise any forward-looking statements contained in this release, which speak only as of the date hereof, whether as a result of new information, future events, or otherwise. Non-GAAP Financial Measures Statements included in this presentation include Non-GAAP financial measures and should be read along with the accompanying tables, which provide a reconciliation of Non-GAAP financial measures to GAAP financial measures. The Non-GAAP financial measures used in this presentation include: (i) tangible common equity, (ii) net operating earnings, (iii) net operating return on average assets, (iv) net operating return on average tangible common equity, (v) operating efficiency ratio, (vi) net operating earnings, less accretion, (vii) tangible book value per share, (viii) net operating earnings per share, and (ix) net interest income excluding purchase accounting adjustments. Tangible common equity excludes total preferred stock, preferred stock paid in capital, goodwill, and other intangible assets, and tangible book value per share reflects the per share value of tangible common equity. Net interest income excluding purchase accounting adjustments adjusts net interest income to exclude the impact of purchase accounting. The operating efficiency ratio excludes securities gains and losses, merger termination fee, and merger related and restructuring expenses from the efficiency ratio. Net operating earnings excludes securities gains and losses, merger termination fee, and merger related and restructuring expenses, and the effect of the December, 2017 tax law change on deferred tax assets, and the income tax effect of adjustments, and operating return on average assets is net operating income divided by GAAP total average assets. Net operating earnings per share is net operating income divided by GAAP total average assets. Net operating return on tangible common equity is net operating income divided by tangible common equity. 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 $2.4 billion Branch Footprint asset bank holding company headquartered in Knoxville, Tennessee Nashville Knoxville Greensboro Jonesboro . Operates one subsidiary bank, SmartBank, which was founded in 40 January 2007 ARKANSAS TENNESSEE NORTH CAROLINA . Located primarily in attractive, high-growth marketsMemphis throughout Chattanooga East Tennessee, Alabama and Florida 77 . 384 full-time employees Huntsville SOUTH . ~$306 million market capitalization(1) 85 CAROLINA . Balance Sheet (06/30/19) Atlanta Birmingham 20 . Assets: $2.4 billion Tuscaloosa GEORGIA . Gross Loans: $1.8 billion . Deposits: $2.0 billion MISSISSIPPI ALABAMA Columbus Jackson 16 . Shareholders’ Equity / Tangible Common Equity (Non-GAAP): Montgomery $299.6 million / $221.3 million Savannah . Profitability (Q2 ’19) 65 75 95 . Net Income / Net Operating Earnings (Non-GAAP): $9.1 million / $5.6 million Mobile . ROAA / Net Operating ROAA (Non-GAAP)Baton: 1.56% Rouge / 0.96% 10 . ROATCE / Net Operating ROATCE (Non-GAAP): 16.78% / 10.31% Tallahassee SMBK Branch New Orleans FLORIDA . Efficiency Ratio / Operating Efficiency Ratio (Non-GAAP): 57.53% / 65.56% . Asset Quality . Superior asset quality and proven credit culture . NPAs / Assets of 0.17% Financial data as of or for the three months ended 06/30/19 (1) Pricing data as of 07/23/19 Note: For a reconciliation of Non-GAAP financial measures to their most directly comparable GAAP measures see Appendix 3


 
Culture We are building a culture where Associates thrive and are empowered to be leaders. The core values that we have established as a company help us operate in unison and have become a critical part of our culture. Our Associates are key to SmartBank’s success. Core Values Act with Integrity Delivering Be Enthusiastic Exhibiting Creating Exceptional, reate Positivity Over-The-Top C “WOW” Professional & Enthusiasm Demonstrate Accountability Experiences Knowledgeable and Positivity Service Embrace Change Positioning Statement At SmartBank, delivering unparalleled value to our Shareholders, Associates, Clients and the Communities we serve drives every decision and action we take. Exceptional value means being there with smart solutions, fast responses and deep commitment every single time. By doing this, we will create the Southeast’s next, great community banking franchise. 4


 
Second Quarter Financial Highlights


 
Solid Earnings Track Record $8,000 Capstone Southern Foothills Acquisition Acquisition Acquisition $6,000 $4,000 Net Operating Net Operating Earnings ($000) $2,000 $0 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 Net Operating Earnings, Less Accretion Accretion, Net of Tax ($ in thousands) 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 Net Operating Earnings $1,819 $3,707 $3,810 $4,844 $4,966 $5,908 $5,509 $5,603 Less: Accretion, Net of Tax ($577) ($1,567) ($943) ($1,911) ($894) ($2,039) ($1,392) ($1,017) Net Operating Earnings, Less Accretion $1,242 $2,140 $2,867 $2,933 $4,072 $3,869 $4,117 $4,586 Note: For a reconciliation of Non-GAAP financial measures to their most directly comparable GAAP measures, see the Appendix 6


 
Performance Trends . Net Operating Earnings (Non-GAAP) of $5.6 ROAA (%) ROATCE (%) million for the quarter, up 16% from a year 1.56 % 16.78 % earlier 1.17 % 13.06 % 1.07 % 12.00 % 1.00 % 0.98 % 11.04 % 0.98 % 0.96 % 10.84 % 10.79 % 10.31 % 0.85 % 0.84 % 0.82 % 8.96 % 9.45 % 9.26 % . ROAA of 1.56% for the quarter and Net Operating ROAA (Non-GAAP) of 0.96% . ROATCE (Non-GAAP) of 16.78% for the quarter and Operating ROATCE (Non-GAAP) Reported Operating (1)(2) of 10.31% . Efficiency Ratio of 57.53% for the quarter and Operating Efficiency Ratio (Non-GAAP) Net Interest Margin (%) Efficiency Ratio (%) of 65.56% 4.54 % 72.31 % 71.34 % 4.28 % 68.65 % 67.71 % 4.11 % 4.10 % 66.92 % 67.17 % 3.94 % 3.94 % 65.56 % . Net Interest Margin (fully taxable equivalent 3.85 % 64.25 % 3.74 % 3.73 % 3.68 % 61.72 % “FTE”) of 3.94%, down 16 basis points from 57.53 % the prior quarter . Nonperforming Assets were 0.17% of Total Assets Reported Operating (1) (1) Operating profitability (Non-GAAP) figures exclude gain on sale of securities, merger termination fee, merger-related and restructuring expenses and nonrecurring items Note: For a reconciliation of these Non-GAAP financial measures to their most directly comparable GAAP measures, see the Appendix 7


 
Balance Sheet Trends Total Assets ($mm) Net Loans ($mm) $2,500 $2,000 $2,354 $2,391 $1,832 $1,828 $2,274 $1,769 $2,300 $1,800 $2,062 $2,051 $1,568 $1,578 $2,100 $1,600 $1,900 $1,400 $1,700 $1,200 $1,500 $1,000 2Q18 3Q18 4Q18 1Q19 2Q19 2Q18 3Q18 4Q18 1Q19 2Q19 Total Deposits ($mm) Book Value Per Share $2,200 $22.50 $21.47 $20.31 $20.82 $2,012 $19.74 $1,994 $19.48 $2,000 $1,922 $20.00 $1,800 $1,717 $17.50 $1,707 $15.18 $15.86 $14.09 $14.38 $14.64 $1,600 $15.00 $1,400 $12.50 $1,200 $10.00 2Q18 3Q18 4Q18 1Q19 2Q19 2Q18 3Q18 4Q18 1Q19 2Q19 Book Value Tangible Book Value (1) (1) For a reconciliation of this Non-GAAP financial measure to its most directly comparable GAAP measures, see the Appendix 8


 
Earnings Profile – Second Quarter 2019 . Net Interest Income increased over 6% year over year (“YoY”) primarily 2Q19 1Q19 2Q18 due to higher average earning Total Interest Income $27,303 $26,943 $22,993 asset balances Total Interest Expense 6,501 5,946 3,455 Net Interest Income 20,802 20,997 19,538 . Increases in Noninterest Income primarily driven by termination fee Total Noninterest Income 8,415 1,698 1,577 from proposed merger with Total Revenue 29,217 22,695 21,115 Entegra Financial Corp. Provision for Loan Losses 393 797 617 Total Noninterest Expense 16,808 15,579 15,271 . Increases in Noninterest Expense Earnings Before Income Taxes 12,016 6,319 5,227 primarily driven by higher salary Income Tax Expense 2,895 1,588 1,295 and occupancy expense from Net Income $9,121 $4,731 $3,932 completed acquisitions, as well as Net Income Per Share: merger expenses Diluted Net Income Per Share $0.65 $0.34 $0.32 . Total Revenue increased 38% YoY Net Operating Earnings Per Share (Non-GAAP): . Net Operating Diluted EPS (Non- Diluted Operating Earnings Per Share $0.40 $0.39 $0.39 GAAP) increased almost 2% YoY Note: For a reconciliation of Non-GAAP financial measures to their most directly comparable GAAP measures, see the Appendix 9


 
Net Interest Income . Net Interest Margin (FTE) decreased quarter to quarter primarily due to lower accretion on acquired loans and increases in deposit costs . Compared to a year ago, Earning Asset Yields are down 20 basis points; the Average Cost of Interest- bearing Liabilities is up 54 basis points . Excluding the effect of purchase accounting adjustments, the Net Interest Margin (FTE) decreased 5 basis point quarter to quarter, primarily due to the higher cost of interest-bearing deposits 2Q19 1Q19 2Q18 Average Yields and Rates 2Q19 1Q19 2Q18 Net Interest Income (FTE) $20,918 $21,112 $19,558 Loans, less accretion 5.23% 5.20% 5.11% Average Earning Assets $2,127,226 $2,089,540 $1,718,162 Accretion 0.30% 0.42% 0.68% Loans 5.53% 5.62% 5.79% Taxable securities 2.55% 2.67% 2.41% Net Interest Margin Tax-exempt securities (FTE) 3.75% 4.07% 3.29% Federal funds and other investments 2.92% 2.68% 2.62% 4.75% Earning Asset Yields 5.17% 5.25% 5.37% 4.50% Total Interest-Bearing Deposits 1.42% 1.32% 0.96% 4.25% Securities sold under agreement to repurchase 0.33% 0.41% 0.28% 4.00% Federal funds purchased and other borrowings 2.87% 4.09% 3.63% Subordinated debt 6.03% 6.04% - 3.75% Total Interest-Bearing Liabilities 1.54% 1.45% 1.00% 3.50% 2Q18 3Q18 4Q18 1Q19 2Q19 Net Interest Margin (FTE) 3.94% 4.10% 4.57% Net Interest Margin (FTE) Net Interest Margin (FTE - ex Purchase Accounting Adj.) (Non-GAAP) Cost of Funds 1.28% 1.21% 0.82% Note: For a reconciliation of Non-GAAP financial measures to their most directly comparable GAAP measures, see the Appendix 10


 
Noninterest Income . Consistent increases in service charges on deposit accounts, and other noninterest income components . Noninterest Income trending upward, with 2Q19 reporting increased mortgage banking income after decreases in 4Q18 and 1Q19 . Increases in other noninterest income mainly resulting from termination fee from proposed merger with Entegra Financial Corp. Noninterest Income (Less Termination Fee) (1) $2,400,000 $1,800,000 Gain (Loss) on Securities, Net $1,200,000 Other Noninterest Income Mortgage Banking Income Service Charges on Deposit Accounts $600,000 $0 2Q18 3Q18 4Q18 1Q19 2Q19 (1) Excludes $6.4 million fee received for merger termination of Entegra Financial Corp. 11


 
Noninterest Expense . Efficiency Ratio remained under 70% for the third consecutive quarter while Operating Efficiency Ratio (Non-GAAP) was 65.56% . Salary increases are primarily due to the addition of associates from two completed acquisitions for periods presented, as well as infrastructure builds . Merger expense of $1.8 million in the quarter Noninterest Expense $20,000,000 68.0% Merger expense 66.0% $15,000,000 Other 64.0% Amortization of Intangibles $10,000,000 Data Processing 62.0% Occupancy $5,000,000 60.0% Salaries & Benefits Operating Efficiency Ratio $0 58.0% 2Q18 3Q18 4Q18 1Q19 2Q19 Note: For a reconciliation of Non-GAAP financial measures to their most directly comparable GAAP measures, see the Appendix 12


 
Attractive Deposit Mix Deposit Composition (06/30/19) Historical Deposit Composition ($mm) $2,500 Noninterest Demand $1,922 $1,994 $2,012 Time 18% $2,000 Deposits 33% Interest- $1,717 $1,707 bearing $635 $673 Demand $649 17% $1,500 Money $536 $569 Market and Savings 32% $1,000 $698 $648 $642 $633 $570 Historical Cost of Deposits $334 $500 $311 $332 3.00% $247 $267 2.50% $320 $329 $357 2.00% 2.50% 2.50% 2.50% $301 $301 2.25% 2.00% $0 1.50% 2Q18 3Q18 4Q18 1Q19 2Q19 1.00% Noninterest Demand Interest-bearing Demand 1.10% 1.18% 0.79% 0.91% 1.00% 0.50% Money Market and Savings Time Deposits 0.00% 2Q18 3Q18 4Q18 2Q19 1Q19 Cost of Deposits Fed Funds Target 13


 
Overview of Loan Portfolio Loan Composition (06/30/19) Historical Loan Composition ($mm) $2,500 Other Residential 1% RE 22% CRE, Non $2,000 Owner $1,777 $1,841 $1,837 Occupied C&I 25% 18% $1,585 $1,575 $411 $406 $407 $1,500 CRE, $356 $350 Owner C&D $473 $464 Occupied 11% $488 23% $1,000 $386 $402 $416 $416 $372 Historical CRE Ratios $360 $364 $500 $187 $205 400% $179 $166 $188 300% $280 $290 $308 $341 $334 269.8% $0 200% 2Q18 3Q18 4Q18 1Q19 2Q19 100% 81.5% C&I C&D 0% CRE, Owner Occupied CRE, Non Owner Occupied 2Q18 3Q18 4Q18 1Q19 2Q19 Residential RE Other CRE C&D 14


 
Asset Quality . Superior asset quality, with Nonperforming Assets at 0.17% of Total Assets compared to the Nonperforming Assets Southeast Peer Median (1) of 0.65% $9,000 1.00% . Remaining fair value discounts on acquired $6,000 0.65% 0.70% loans are 2.0x the current Allowance For Loan $3,000 0.17% 0.40% Losses $0 0.10% 2Q18 3Q18 4Q18 1Q19 2Q19* . Acquisitions are marked conservatively for Foreclosed Assets potential losses Nonperforming Loans . Proven credit culture, with Net Charge-Offs to Nonperforming Assets/ Total Assets (SMBK) Average Loans of 0.00% compared to the Nonperforming Assets/ Total Assets (SE Peer Median) (1) Southeast Peer Median (1) of 0.04% Loan Discounts Net Charge-Offs/ Average Loans $30 0.90% 0.15% $20 0.60% 0.10% $10 0.30% 0.05% $0 0.00% 0.04% 2Q18 3Q18 4Q18 1Q19 2Q19 0.00% 0.00% Allowance for Loan Losses (GAAP) (0.05%) Net Acquisition Accounting Fair Falue Discounts to Loans 2Q18 3Q18 4Q18 1Q19 2Q19* (1) Allowance for Loan Losses/ Loans SMBK SE Peer Median Source: S&P Global Market Intelligence (1) Publicly traded banks between $1.5B and $3B in assets headquartered in the Southeast (AL, AR, FL, GA, LA, MS, NC, SC, TN and WV) as of 03/31/19 * Peer median data held constant from 1Q19 due to unavailable 2Q19 data as of SMBK reporting date 15


 
Summary of Moving Forward Initiatives The company is Moving Forward with several major initiatives that were planned: Initiatives Completed In-Process . Centralization of operational areas  . Centralization of finance group  . Bank-wide organizational chart planning to gain efficiencies  . Core data processing decision (contract up in 2020)  . Continued hiring of bank talent in our growth markets  . Evaluation of new M&A opportunities  16


 
Appendix


 
Non-GAAP Reconciliations 2Q19 1Q19 4Q18 3Q18 2Q18 Net interest income - ex purchase acct. adj. Net interest income (GAAP) $ 20,802 $ 20,997 $ 21,436 $ 18,861 $ 19,538 Taxable equivalent adjustment 116 115 93 16 20 Net interest income TEY 20,918 21