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Section 1: 8-K (8-K)

Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Date of earliest event reported: October 21, 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 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 October 21, 2019, SmartFinancial, Inc. (SmartFinancial") issued a press release (the "Press Release") reporting earnings results for its third quarter ending September 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 October 22, 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 third quarter 2019 financial results dated October 21, 2019

99.2
Third 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: October 21, 2019
 
 
/s/ William Y. Carroll, Jr.
 
William Y. Carroll, Jr.
 
President & Chief Executive Officer





EXHIBIT INDEX 

Exhibit No.
 
Description
 
 
 
 
Press release announcing third quarter 2019 financial results dated October 21, 2019

 
Third quarter 2019 investor presentation




(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit


Exhibit 99.1
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3Q 2019
  
SmartFinancial Announces Earnings with Third Quarter 2019 Net Income of $6.0 million

Performance Highlights for Third Quarter of 2019

Return on average assets of 1.01% and net operating return on average assets (Non-GAAP) of 1.02%
Asset quality remains outstanding with nonperforming assets to total assets of 0.20%
Loan growth of $31.8 million, or 6.9% annualized
Tangible book value (Non-GAAP) per share of $16.37, a 13.8% year-over-year increase
Noninterest-bearing demand deposit growth of 8.7% annualized

KNOXVILLE, TN - October 21, 2019 - SmartFinancial, Inc. ("SmartFinancial"; NASDAQ: SMBK), today announced net income of $6.0 million, or $0.42 per diluted common share, for the third quarter of 2019, compared to net income of $4.3 million, or $0.34 per diluted common share, for the third quarter of 2018. Net operating earnings (Non-GAAP), which excludes securities gains, and merger related and restructuring expenses, totaled $6.0 million, or $0.43 per diluted common share, in the third quarter of 2019 compared to $5.0 million, or $0.39 per diluted common share, in the third quarter of 2018.

Billy Carroll, President & CEO, stated: "This was another very solid quarter for our company, as we are starting to see the positive results of our recent integration initiatives.  Our continued focus on organic growth and cost savings are allowing us to drive stronger profitability, which has positioned us well for the future."
 
SmartFinancial's Chairman, Miller Welborn, concluded: "The consistency we are beginning to show in our financial metrics is very exciting, as our team continues to execute on our strategy while maintaining a keen focus on growing our shareholder value."
 
Third Quarter 2019 compared to Second Quarter 2019

Net income totaled $6.0 million, or $0.42 per diluted common share, for the third quarter of 2019, a decrease of $3.1 million, compared to $9.1 million, or $0.65 per diluted common share, for the second quarter of 2019, primarily due to a $6.4 million fee received in the second quarter of 2019 in connection with the merger termination with Entegra Financial Corp. Net operating earnings (Non-GAAP) totaled $6.0 million, or $0.43 per diluted common share, in the third quarter of 2019 compared to $5.6 million, or $0.40 per diluted common share, in the previous quarter.

Net interest income increased $338 thousand to $21.1 million for the third quarter of 2019 compared to $20.8 million for the second quarter of 2019. The tax equivalent net interest margin was 3.91% for the third quarter of 2019 compared to 3.94% for the second quarter of 2019. The tax equivalent average yield on interest-earning assets was 5.05% for the third quarter of 2019, a decrease from 5.17% for the second quarter of 2019. The yield on interest-bearing liabilities decreased to 1.47% for the third quarter of 2019 from 1.54% for the second quarter of 2019.
The yield on average loans was 5.48% for the third quarter of 2019 compared to 5.53% for the second quarter of 2019. The decrease in yield on average loans was primarily due to the impact from two Federal rate decreases which effected the repricing of variable rate loans and new loan production. During the third quarter of 2019, lower discount accretion was recorded on acquired loans (26 basis points in the third quarter of 2019 versus 30 basis points in the second quarter of 2019) being offset by increased loan fees (20 basis points in the third quarter of 2019 versus 16 basis points in the second quarter of 2019). For the third quarter of 2019, the yield on average loans, excluding accretion, was 5.22%, a decrease of one basis point from the second quarter of 2019.
The cost of average interest-bearing deposits decreased to 1.37% for the third quarter of 2019 from 1.42% for the second quarter of 2019. The decrease was driven primarily by the reduction in money market and savings rates of 21 basis points, offset partially by an eight basis point increase in time deposit rates.

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Provision for loan losses was $724 thousand in the third quarter of 2019, compared to $393 thousand in the second quarter of 2019. The increase in provision was primarily due to higher organic loan growth and an increase in specific reserves. The allowance for loan losses was $9.8 million, or 0.53% of total loans, as of September 30, 2019, compared to $9.1 million, or 0.50% of total loans, as of June 30, 2019.
Nonperforming loans as a percentage of total loans was 0.17% as of September 30, 2019, an increase of two basis points from the 0.15% reported in the second 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 0.20% as of September 30, 2019 as compared to 0.19% at June 30, 2019. 
Noninterest income decreased by $6.2 million to $2.2 million for the third quarter of 2019 compared to $8.4 million for the second quarter of 2019 primarily due to the $6.4 million merger termination fee received in the second quarter of 2019, and was offset by increases in mortgage banking of $126 thousand and service charges on deposit accounts of $60 thousand. Operating noninterest income (Non-GAAP) to average assets (excluding the $6.4 million merger termination fee) of 0.37% for the third quarter of 2019 increased from 0.35% in the second quarter of 2019.

Noninterest expense decreased by $2.1 million to $14.7 million for the third quarter of 2019 compared to $16.8 million for the second quarter of 2019. The decrease is primarily due to the reduction of merger-related and restructuring expenses of $1.7 million. Operating noninterest expense (Non-GAAP, excludes merger-related and restructuring expenses) decreased by $378 thousand to $14.6 million for the third quarter of 2019 compared to $15.0 million for the second quarter of 2019. This decrease was primarily due to a credit recognized during the third quarter of 2019 from the FDIC as a result of the FDIC Deposit Insurance exceeding 1.38% of insured deposits at June 30, 2019, as such, no FDIC insurance expense was recognized during the third quarter of 2019. Operating noninterest expense (Non-GAAP) to average assets was 2.47% for the third quarter of 2019 which is a decrease from 2.57% in the second quarter of 2019.
Under FDIC regulations, banks having consolidated assets below $10 billion paid a refundable assessment into the FDIC insurance fund over a nine quarter period beginning with the third quarter of 2016. That assessment was to be credited back to the institution if and when the deposit insurance fund (“DIF”) exceeded 1.38% of insured deposits, which occurred with the June 30, 2019 computation. Additionally, if the DIF remains above 1.38% of insured deposits assessment at December 31, 2019, an additional credit will be applied to the fourth quarter of 2019.
Income tax expense was $1.9 million in the third quarter of 2019 compared to $2.9 million in the second quarter of 2019. The decrease of $1.0 million in income tax expense, was primarily due to the $6.4 million termination fee recognized in the second quarter of 2019. The overall effective tax rate was 24.6% for the third quarter of 2019 compared to 24.1% in the second quarter of 2019.

Third Quarter 2019 compared to Third Quarter 2018

Net income increased by $1.7 million to $6.0 million, or $0.42 per diluted common share, for the third quarter of 2019 compared to $4.3 million, or $0.34 per diluted common share, for the third quarter of 2018 primarily due to 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. Net operating earnings (Non-GAAP) totaled $6.0 million, or $0.43 per diluted common share, in the third quarter of 2019 compared to $5.0 million, or $0.39 per diluted common share, for the third quarter of 2018.

Net interest income increased $2.2 million to $21.1 million for the third quarter of 2019 compared to $18.9 million for the third quarter of 2018. The tax equivalent net interest margin was 3.91% for the third quarter of 2019 compared to 4.11% for the third quarter of 2018. The tax equivalent average yield on interest-earning assets was 5.05% for the third quarter of 2019 increasing slightly from 5.03% for the third quarter of 2018, while the yield on interest bearing liabilities increased to 1.47% for the third quarter of 2019 from 1.15% for the third quarter of 2018.
The yield on average loans was 5.48% for the third quarter of 2019 compared to 5.43% for the third quarter of 2018. The increase in yield on average loans was primarily due to increases in yields on average loans of 10 basis points, offset by lower discount accretion on acquired loans (26 basis points in the third quarter of 2019 versus 31 basis points in the third quarter of 2018). For the third quarters of 2019 and 2018, the yield on average loans, excluding accretion, was 5.22% and 5.12%, respectively.
The cost of average interest-bearing deposits increased to 1.37% for the third quarter of 2019 from 1.11% for the third quarter of 2018. Deposit rates remain elevated at the end of the third quarter of 2019 due to a higher interest rate environment in 2019 and continued competition for deposits.


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Provision for loan losses was $724 thousand in the third quarter of 2019, compared to $302 thousand in the third quarter of 2018. The increase in provision was primarily due to higher organic loan growth and an increase in specific reserves during the third quarter of 2019 when compared to the third quarter of 2018. The allowance for loan losses was $9.8 million, or 0.53% of total loans, as of September 30, 2019, compared to $7.2 million, or 0.45% of total loans, as of September 30, 2018.

Nonperforming loans as a percentage of total loans was 0.17% as of September 30, 2019 and September 30, 2018. 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 0.20% as of September 30, 2019, compared to 0.34% as of September 30, 2018.
 
Noninterest income increased by $365 thousand to $2.2 million for the third quarter of 2019 compared to $1.8 million for the third quarter of 2018 primarily due to increases in deposit services charges of $143 thousand, increases in mortgage banking of $25 thousand and wealth revenue of $135 thousand. Noninterest income to average assets of 0.37% for the third quarter of 2019 increased from 0.36% in the third quarter of 2018.

Noninterest expense was $14.7 million for the third quarter of 2019 compared to $14.8 million for the third quarter of 2018, remaining flat for compared periods. Operating noninterest expense (Non-GAAP, excludes merger-related and restructuring expenses of $73 thousand for third quarter of 2019 and $838 thousand for third quarter of 2018) increased by $0.7 million to $14.6 million for the third quarter of 2019 compared to $13.9 million for the third quarter of 2018. This increase was primarily due to increases in personnel expense, as the second and third quarters of 2019 began to show the full effects of acquisitions completed during the prior reporting periods. Operating noninterest expense (Non-GAAP, excludes merger-related and restructuring expenses) to average assets of 2.47% for the third quarter of 2019 decreased from 2.73% in the third quarter of 2018.

Income tax expense was $1.9 million in the third quarter of 2019 compared to $1.3 million in the third quarter of 2018. The overall effective tax rate was 24.6% for the third quarter of 2019 compared 23.2% for the third 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 issue its earnings release for the third quarter of 2019 on Monday, October 21, 2019, and will host a conference call on Tuesday, October 22, 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, 0242522. A replay of the conference call will be available through October 22, 2020, by dialing (877) 344-7529 or (412) 317-0088 and entering the confirmation number, 10135243. 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 [email protected]        (865) 437-5724 [email protected]
 
Media Contact
Kelley Fowler
Senior Vice President, Public Relations & Marketing
(865) 868-0611    [email protected]
 
Non-GAAP Financial Measures

Statements included in this presentation include Non-GAAP financial measures and should be read along with the accompanying tables, which provide a reconciliation of Non-GAAP financial measures to GAAP financial measures. SmartFinancial management uses several Non-GAAP financial measures, including: (i) net operating earnings, (ii) net operating return on average assets, (iii) net operating return on average shareholder equity, (iv) return on average tangible common equity, (v) net operating return on average tangible common equity, (vi) operating efficiency ratio; (vii) tangible common equity; (viii) average tangible common equity; (ix) operating noninterest income; (x) operating noninterest expenses; and ratios derived therefrom, in its analysis of the company's performance. Net operating earnings excludes the following from net income: securities gains and losses, merger termination fee, 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. Operating noninterest income excludes the merger termination fee. Operating noninterest excludes merger-related and restructuring cost. Management believes that Non-GAAP financial measures provide additional useful information that allows investors to evaluate the ongoing performance of the company and provide meaningful comparisons to its peers. Management believes these non-GAAP financial measures also enhance investors' ability to compare period-to-period financial results and allow investors and company management to view our operating results excluding the impact of items that are not reflective of the underlying operating performance. Non-GAAP financial measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider SmartFinancial's performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the company. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the results or financial condition as reported under GAAP.

Forward-Looking Statements

This news release may contain statements that are based on management’s current estimates or expectations of future events or future results, and that may be deemed to constitute forward-looking statements as defined under 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)
 
 
 
 
 
 
(dollars in thousands except share and per share data)
 
 
 
 
 
 
As of and for The Three Months Ended
 
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
September 30,
 
 
2019
 
2019
 
2019
 
2018
 
2018
Selected Performance Ratios (Annualized):
 
 
 
 
 
 
 
 
 
 
Return on average assets
 
1.01
%
 
1.56
%
 
0.84
%
 
1.17
%
 
0.85
%
Return on average shareholders' equity
 
7.80
%
 
12.34
%
 
6.71
%
 
9.44
%
 
6.86
%
Return on average tangible common equity (Non-GAAP)¹
 
10.52
%
 
16.78
%
 
9.26
%
 
13.09
%
 
9.45
%
Noninterest income / average assets
 
0.37
%
 
1.44
%
 
0.30
%
 
0.31
%
 
0.36
%
Noninterest expense / average assets
 
2.48
%
 
2.88
%
 
2.77
%
 
2.84
%
 
2.90
%
Efficiency ratio
 
63.03
%
 
57.53
%
 
68.65
%
 
67.71
%
 
71.33
%
 
 
 
 
 
 
 
 
 
 
 
Operating Selected Performance Ratios (Annualized):
 
 
 
 
 
 
 
 
 
 
Net operating return on average assets (Non-GAAP)¹
 
1.02
%
 
0.96
%
 
0.98
%
 
1.07
%
 
0.98
%
Net operating return on average shareholders' equity (Non-GAAP)¹
 
7.87
%
 
7.58
%
 
7.81
%
 
8.65
%
 
7.88
%
Net operating return on average tangible common equity (Non-GAAP)¹
 
10.61
%
 
10.31
%
 
10.79
%
 
12.00
%
 
10.84
%
Operating efficiency ratio (Non-GAAP)¹
 
62.42
%
 
65.56
%
 
64.25
%
 
61.72
%
 
67.17
%
 
 
 
 
 
 
 
 
 
 
 
Selected Interest Rates and Yields:
 
 
 
 
 
 
 
 
 
 
Yield on loans
 
5.48
%
 
5.53
%
 
5.62
%
 
5.81
%
 
5.43
%
Yield on earning assets, FTE
 
5.05
%
 
5.17
%
 
5.25
%
 
5.36
%
 
5.03
%
Cost of interest-bearing deposits
 
1.37
%
 
1.42
%
 
1.32
%
 
1.21
%
 
1.11
%
Cost of total deposits
 
1.13
%
 
1.18
%
 
1.10
%
 
1.00
%
 
0.91
%
Cost of interest-bearing liabilities
 
1.47
%
 
1.54
%
 
1.45
%
 
1.33
%
 
1.15
%
Net interest margin, FTE
 
3.91
%
 
3.94
%
 
4.10
%
 
4.28
%
 
4.11
%
 
 
 
 
 
 
 
 
 
 
 
Per Common Share:
 
 
 
 
 
 
 
 
 
 
Net income, basic
 
$
0.43

 
$
0.65

 
$
0.34

 
$
0.48

 
$
0.34

Net income, diluted
 
0.42

 
0.65

 
0.34

 
0.47

 
0.34

Net operating earnings, basic (Non-GAAP)¹
 
0.43

 
0.40

 
0.40

 
0.44

 
0.39

Net operating earnings, diluted (Non-GAAP)¹
 
0.43

 
0.40

 
0.39

 
0.43

 
0.39

Book value
 
21.93

 
21.47

 
20.82

 
20.31

 
19.74

Tangible book value (Non-GAAP)¹
 
16.37

 
15.86

 
15.18

 
14.64

 
14.38

Common shares outstanding
 
13,957,973

 
13,953,209

 
13,951,590

 
13,933,504

 
12,750,272

 
 
 
 
 
 
 
 
 
 
 
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
 
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
September 30,
 
 
2019
 
2019
 
2019
 
2018
 
2018
Composition of Loans:
 
 
 
 
 
 
 
 
 
 
Commercial real estate
 
 
 
 
 
 
 
 
 
 
owner occupied
 
$
422,363

 
$
415,502

 
$
416,152

 
$
372,030

 
$
364,164

non-owner occupied
 
468,099

 
464,160

 
472,790

 
487,997

 
401,922

Commercial real estate, total
 
890,462

 
879,662

 
888,942

 
860,027

 
766,086

Commercial & industrial
 
341,207

 
334,258

 
341,471

 
308,254

 
289,784

Construction & land development
 
219,751

 
204,731

 
187,009

 
187,895

 
165,906

Consumer real estate
 
405,531

 
406,357

 
410,981

 
407,254

 
350,422

Consumer and other
 
10,796

 
11,981

 
12,166

 
13,809

 
12,996

Total loans
 
$
1,867,747

 
$
1,836,989

 
$
1,840,569

 
$
1,777,239

 
$
1,585,194

 
 
 
 
 
 
 
 
 
 
 
Asset Quality and Additional Loan Data:
 
 
 
 
 
 
 
 
 
 
Nonperforming loans
 
$
3,166

 
$
2,838

 
$
2,282

 
$
3,280

 
$
2,686

Other real estate owned
 
1,561

 
1,814

 
2,066

 
2,495

 
4,230

Total nonperforming assets
 
$
4,727

 
$
4,652

 
$
4,348

 
$
5,775

 
$
6,916

Restructured loans not included in nonperforming loans
 
$
61

 
$
62

 
$
62

 
$
116

 
$
693

Net charge-offs (recoveries) to average loans (annualized)
 
0.01
%
 
%
 
0.08
%
 
0.04
%
 
0.06
%
Allowance for loan losses to loans
 
0.53
%
 
0.50
%
 
0.47
%
 
0.47
%
 
0.45
%
Nonperforming loans to total loans, gross
 
0.17
%
 
0.15
%
 
0.12
%
 
0.18
%
 
0.17
%
Nonperforming assets to total assets
 
0.20
%
 
0.19
%
 
0.18
%
 
0.25
%
 
0.34
%
Purchase accounting discount balance
 
$
16,784

 
$
18,571

 
$
19,954

 
$
21,528

 
$
19,500

Accretion income on acquired loans
 
1,246

 
1,374

 
1,717

 
2,343

 
1,208

 
 
 
 
 
 
 
 
 
 
 
Capital Ratios:
 
 
 
 
 
 
 
 
 
 
Equity to Assets
 
12.80
%
 
12.53
%
 
12.34
%
 
12.44
%
 
12.27
%
Tangible common equity to tangible assets (Non-GAAP)3
 
9.88
%
 
9.57
%
 
9.31
%
 
9.29
%
 
9.25
%
 
 
 
 
 
 
 
 
 
 
 
SmartFinancial, Inc.1
 
 
 
 
 
 
 
 
 
 
Tier 1 leverage
 
10.02
%
 
9.92
%
 
9.29
%
 
9.47
%
 
9.26
%
Common equity Tier 1
 
11.54
%
 
11.21
%
 
10.61
%
 
10.81
%
 
10.88
%
Tier 1 capital
 
11.54
%
 
11.21
%
 
10.61
%
 
10.81
%
 
10.88
%
Total capital
 
13.98
%
 
13.65
%
 
13.01
%
 
13.29
%
 
13.57
%
 
 
 
 
 
 
 
 
 
 
 
SmartBank
 
Estimated2

 
 
 
 
 
 
 
 
Tier 1 leverage
 
11.23
%
 
10.92
%
 
10.96
%
 
11.17
%
 
10.55
%
Common equity Tier 1
 
12.71
%
 
12.37
%
 
12.18
%
 
12.31
%
 
11.99
%
Tier 1 risk-based capital
 
12.71
%
 
12.37
%
 
12.18
%
 
12.31
%
 
11.99
%
Total risk-based capital
 
13.20
%
 
12.82
%
 
12.62
%
 
12.74
%
 
12.40
%

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





SmartFinancial, Inc. and Subsidiary
 
 
 
 
 
 
 
 
Condensed Consolidated Financial Information - (unaudited)
 
 
 
 
 
 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Ending Balances
 
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
September 30,
 
 
2019
 
2019
 
2019
 
2018
 
2018
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
 
$
170,934

 
$
199,534

 
$
132,994

 
$
115,822

 
$
130,104

Securities available-for-sale, at fair value
 
171,507

 
174,114

 
198,273

 
201,688

 
173,039

Other investments
 
12,913

 
12,905

 
12,398

 
11,499

 
10,736

Loans held for sale
 
3,068

 
4,087

 
2,103

 
1,979

 
4,038

Loans
 
1,864,679

 
1,832,902

 
1,838,466

 
1,775,260

 
1,581,155

 Less: Allowance for loan losses
 
(9,792
)
 
(9,097
)
 
(8,704
)
 
(8,275
)
 
(7,156
)
 Loans, net
 
1,854,887

 
1,823,805

 
1,829,762

 
1,766,985

 
1,573,999

Premises and equipment, net
 
58,386

 
56,589

 
56,583

 
56,012

 
51,138

Other real estate owned
 
1,561

 
1,814

 
2,066

 
2,495

 
4,230

Goodwill and core deposit intangibles, net
 
77,534

 
78,348

 
78,690

 
79,034

 
68,254

Bank owned life insurance
 
24,796

 
24,695

 
24,540

 
24,381

 
22,088

Other assets
 
14,899

 
15,366

 
16,572

 
14,514

 
13,320

Total assets
 
$
2,390,485

 
$
2,391,257

 
$
2,353,981

 
$
2,274,409

 
$
2,050,946

 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 

 
 

 
 

 
 

 
 

Deposits:
 
 
 
 
 
 
 
 
 
 
  Noninterest-bearing demand
 
$
365,024

 
$
357,220

 
$
329,095

 
$
319,861

 
$
301,197

  Interest-bearing demand
 
351,474

 
333,705

 
331,629

 
311,482

 
267,146

  Money market and savings
 
634,934

 
648,132

 
698,431

 
641,945

 
570,172

  Time deposits
 
646,641

 
673,243

 
635,175

 
648,676

 
568,796

  Total deposits
 
1,998,073

 
2,012,300

 
1,994,330

 
1,921,964

 
1,707,311

Securities sold under agreements to repurchase
 
4,368

 
8,219

 
7,070

 
11,756

 
16,786

FHLB & other borrowings
 
25,460

 
15,460

 
8,605

 
11,243

 
25,324

Subordinated debt
 
39,240

 
39,219

 
39,198

 
39,177

 
39,158

Other liabilities
 
17,304

 
16,448

 
14,297

 
7,258

 
10,725

Total liabilities
 
2,084,445

 
2,091,646

 
2,063,500

 
1,991,398

 
1,799,304

Shareholders' Equity:
 
 
 
 
 
 
 
 
 
 
Common stock
 
13,958

 
13,953

 
13,952

 
13,933

 
12,750

Additional paid-in capital
 
232,573

 
232,386

 
232,241

 
231,852

 
208,999

Retained earnings
 
59,806

 
53,843

 
44,722

 
39,991

 
33,559

Accumulated other comprehensive loss
 
(297
)
 
(571
)
 
(434
)
 
(2,765
)
 
(3,666
)
Total shareholders' equity
 
306,040

 
299,611

 
290,481

 
283,011

 
251,642

Total liabilities & shareholders' equity
 
$
2,390,485

 
$
2,391,257

 
$
2,353,981

 
$
2,274,409

 
$
2,050,946





SmartFinancial, Inc. and Subsidiary
 
 
 
 
Condensed Consolidated Financial Information - (unaudited)
 
 
 
 
 
 
(dollars in thousands, except per share data)
 
 
 
 
 
 
Three Months Ended
 
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
September 30,
 
 
2019
 
2019
 
2019
 
2018
 
2018
Interest income:
 
 
 
 
 
 
 
 
 
 
Loans, including fees
 
$
25,515

 
$
25,278

 
$
24,975

 
$
25,018

 
$
21,571

Securities available-for-sale:
 
 
 

 

 

 

 Taxable
 
748

 
871

 
971

 
900

 
839

 Tax-exempt
 
338

 
411

 
424

 
347

 
129

Federal funds sold and other earning assets
 
743

 
743

 
573

 
506

 
529

Total interest income
 
27,344

 
27,303

 
26,943

 
26,771

 
23,068

 
 
 
 
 
 
 
 
 
 
 
Interest expense:
 
 
 
 
 
 
 
 
 
 
Deposits
 
5,605

 
5,788

 
5,251

 
4,680

 
3,969

Securities sold under agreements to repurchase
 
5

 
6

 
8

 
9

 
11

FHLB advances and other borrowings
 
10

 
117

 
103

 
51

 
209

Subordinated debt
 
584

 
590

 
584

 
584

 
19

Total interest expense
 
6,204

 
6,501

 
5,946

 
5,324

 
4,208

Net interest income
 
21,140

 
20,802

 
20,997

 
21,447

 
18,860

Provision for loan losses
 
724

 
393

 
797

 
1,329

 
302

Net interest income after provision for loan losses
 
20,416

 
20,409

 
20,200

 
20,118

 
18,558

 
 
 
 
 
 
 
 
 
 
 
Noninterest income:
 
 
 
 
 
 
 
 
 
 
Service charges on deposit accounts
 
767

 
707

 
654

 
663

 
624

Gain on sale of securities, net
 
1

 
33

 

 
2

 

Mortgage banking
 
518

 
392

 
282

 
251

 
493

Interchange and debit card transaction fees
 
148

 
143

 
175

 
162

 
144

Merger termination fee
 

 
6,400

 

 

 

Other
 
762

 
741

 
587

 
602

 
570

Total noninterest income
 
2,196

 
8,416

 
1,698

 
1,680

 
1,831

 
 
 
 
 
 
 
 
 
 
 
Noninterest expense:
 
 
 
 
 
 
 
 
 
 
Salaries and employee benefits
 
9,072

 
8,984

 
8,398

 
7,871

 
7,934

Occupancy and equipment
 
1,635

 
1,658

 
1,640

 
1,610

 
1,638

FDIC insurance (credit)
 
(219
)
 
180

 
179

 
209

 
158

Other real estate and loan related expense
 
335

 
242

 
490

 
738

 
578

Advertising and marketing
 
263

 
259

 
295

 
246

 
228

Data processing
 
273

 
577

 
615

 
372

 
407

Professional services
 
573

 
489

 
662

 
707

 
727

Amortization of intangibles
 
341

 
342

 
344

 
312

 
248

Software as service contracts
 
560

 
568

 
567

 
577

 
507

Merger related and restructuring expenses
 
73

 
1,796

 
923

 
1,322

 
838

Other
 
1,802

 
1,714

 
1,466

 
1,697

 
1,497

Total noninterest expense
 
14,708

 
16,809

 
15,579

 
15,661

 
14,760

Income before income taxes
 
7,904

 
12,016

 
6,319

 
6,137

 
5,629

Income tax expense
 
1,941

 
2,895

 
1,588

 
(307
)
 
1,305

Net income
 
$
5,963

 
$
9,121

 
$
4,731

 
$
6,444

 
$
4,324

 
 
 
 
 
 
 
 
 
 
 
Earnings Per Common Share:
 
 
 
 
 
 
 
 
 
 
Basic
 
$
0.43

 
$
0.65

 
$
0.34

 
$
0.48

 
$
0.34

Diluted
 
$
0.42

 
$
0.65

 
$
0.34

 
$
0.47

 
$
0.34

Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
 
 
Basic
 
13,955,859

 
13,951,643

 
13,942,016

 
13,534,806

 
12,718,861

Diluted
 
14,053,432

 
14,046,500

 
14,018,163

 
13,616,616

 
12,817,556





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

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Loans
 
$
1,846,196

 
$
25,515

 
5.48
%
 
$
1,832,639

 
$
25,278

 
5.53
%
 
$
1,577,222

 
$
21,573

 
5.43
%
Taxable securities
 
118,955

 
748

 
2.49
%
 
136,859

 
871

 
2.55
%
 
141,750

 
839

 
2.35
%
Tax-exempt securities
 
56,598

 
448

 
3.14
%
 
56,475

 
527

 
3.75
%
 
17,329

 
166

 
3.80
%
Federal funds sold and other earning assets
 
135,444

 
743

 
2.18
%
 
102,253

 
743

 
2.91
%
 
85,995

 
526

 
2.43
%
Total interest-earning assets
 
2,157,193

 
27,454

 
5.05
%
 
2,128,226

 
27,419

 
5.17
%
 
1,822,296

 
23,104

 
5.03
%
Noninterest-earning assets
 
191,940

 
 

 
 

 
215,010

 
 
 
 
 
198,215

 
 

 
 

Total assets
 
$
2,349,133

 
 

 
 

 
$
2,343,236

 
 
 
 
 
$
2,020,511

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders’ Equity:
 
 

 
 

 
 

 
 
 
 
 
 
 
 

 
 

 
 

Interest-bearing demand deposits
 
$
343,827

 
511

 
0.59
%
 
$
329,556

 
464

 
0.57
%
 
$
239,220

 
283

 
0.47
%
Money market and savings deposits
 
637,290

 
1,829

 
1.14
%
 
673,502

 
2,272

 
1.35
%
 
615,334

 
1,595

 
1.03
%
Time deposits
 
640,679

 
3,265

 
2.02
%
 
629,480

 
3,052

 
1.94
%
 
564,945

 
2,091

 
1.47
%
Total interest-bearing deposits
 
1,621,796

 
5,605

 
1.37
%
 
1,632,538

 
5,788

 
1.42
%
 
1,419,499

 
3,969

 
1.11
%
Securities sold under agreement to repurchase
 
6,490

 
5

 
0.31
%
 
7,249

 
6

 
0.33
%
 
17,694

 
11

 
0.25
%
Federal funds purchased and other borrowings
 
6,820

 
10

 
0.58
%
 
16,436

 
117

 
2.87
%
 
16,415

 
209

 
5.05
%
Subordinated debt
 
39,226

 
584

 
5.91
%
 
39,205

 
590

 
6.03
%
 
1,304

 
19

 
5.78
%
Total interest-bearing liabilities
 
1,674,332

 
6,204

 
1.47
%
 
1,695,428

 
6,501

 
1.54
%
 
1,454,912

 
4,208

 
1.15
%
Noninterest-bearing deposits
 
353,315

 
 

 
 

 
336,871

 
 
 
 
 
307,007

 
 

 
 

Other liabilities
 
18,286

 
 

 
 

 
14,367

 
 
 
 
 
8,529

 
 

 
 

Total liabilities
 
2,045,933

 
 

 
 

 
2,046,666

 
 
 
 
 
1,770,448

 
 

 
 

Stockholders’ equity
 
303,200

 
 

 
 

 
296,570

 
 
 
 
 
250,063

 
 

 
 

Total liabilities and stockholders’ equity
 
$
2,349,133

 
 

 
 

 
$
2,343,236

 
 
 
 
 
$
2,020,511

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income, taxable equivalent
 
 

 
$
21,250

 
 

 
 
 
$
20,918

 
 
 
 

 
$
18,896

 
 

Interest rate spread
 
 

 
 

 
3.58
%
 
 
 
 
 
3.63
%
 
 

 
 

 
3.88
%
Tax equivalent net interest margin
 
 

 
 

 
3.91
%
 
 
 
 
 
3.94
%
 
 

 
 

 
4.11
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percentage of average interest-earning assets to average interest-bearing liabilities
 
 

 
 

 
128.84
%
 
 
 
 
 
125.53
%
 
 

 
 

 
125.25
%
Percentage of  average equity to average assets
 
 

 
 

 
12.91
%
 
 
 
 
 
12.66
%
 
 

 
 

 
12.38
%
 
 
 

 
 

 
 

 
 
 
 
 
 
 
 

 
 

 
 

1 Taxable equivalent




SmartFinancial, Inc. and Subsidiary
 
 
 
 
Condensed Consolidated Financial Information - (unaudited)
 
 
 
 
 
 
(In thousands)
 
 
 
 
NON-GAAP RECONCILIATIONS
 
 
 
 
Three Months Ended
 
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
September 30,
 
 
2019
 
2019
 
2019
 
2018
 
2018
Operating Earnings:
 
 
 
 
 
 
 
 
 
 
Net income (GAAP)
 
$
5,963

 
$
9,121

 
$
4,731

 
$
6,444

 
$
4,324

Securities (gains) losses
 
(1
)
 
(33
)
 

 
(2
)
 

Merger termination fee
 

 
(6,400
)
 

 

 

Merger related and restructuring expenses
 
73

 
1,796

 
923

 
1,322

 
838

Tax benefit from director options previously exercised
 

 

 

 
(1,600
)
 

Income tax effect of adjustments
 
(19
)
 
1,119

 
(145
)
 
(257
)
 
(196
)
Net operating earnings (Non-GAAP)
 
$
6,016

 
$
5,603

 
$
5,509

 
$
5,907

 
$
4,966

Net operating earnings per common share (Non-GAAP):
 
 
 
 
 
 
 
 
 
 
Basic
 
$
0.43

 
$
0.40

 
$
0.40

 
$
0.44

 
$
0.39

Diluted
 
0.43

 
0.40

 
0.39

 
0.43

 
0.39

 
 
 
 
 
 
 
 
 
 
 
Operating Noninterest Income:
 
 
 
 
 
 
 
 
 
 
  Noninterest income (GAAP)
 
$
2,196

 
$
8,416

 
$
1,698

 
$
1,680

 
$
1,831

  Merger termination fee
 

 
6,400

 

 

 

  Operating noninterest income (Non-GAAP)
 
$
2,196

 
$
14,816

 
$
1,698

 
$
1,680

 
$
1,831

 
 
 
 
 
 
 
 
 
 
 
Operating Noninterest Expense:
 
 
 
 
 
 
 
 
 
 
  Noninterest expense (GAAP)
 
$
14,708

 
$
16,809

 
$
15,579

 
$
15,661

 
$
14,760

  Merger related and restructuring expenses
 
(73
)
 
(1,796
)
 
(923
)
 
(1,322
)
 
(838
)
  Operating noninterest expense (Non-GAAP)
 
$
14,635

 
$
15,013

 
$
14,656

 
$
14,339

 
$
13,922

 
 
 
 
 
 
 
 
 
 
 
Non-GAAP Return Ratios:
 
 
 
 
 
 
 
 
 
 
Net operating return on average assets (Non-GAAP)1
 
1.02
 %
 
0.96
 %
 
0.98
 %
 
1.07
 %
 
0.98
 %
Return on average tangible common equity (Non-GAAP)2
 
10.52
 %
 
16.78
 %
 
9.26
 %
 
13.09
 %
 
9.45
 %
Net operating return on average shareholder equity (Non-GAAP)3
 
7.87
 %
 
7.58
 %
 
7.81
 %
 
8.65
 %
 
7.88
 %
Net operating return on average tangible common equity (Non-GAAP)4
 
10.61
 %
 
10.31
 %
 
10.79
 %
 
12.00
 %
 
10.84
 %
 
 
 
 
 
 
 
 
 
 
 
Operating Efficiency Ratio:
 
 
 
 
 
 
 
 
 
 
Efficiency ratio (GAAP)
 
63.03
 %
 
57.53
 %
 
68.65
 %
 
67.71
 %
 
71.33
 %
Adjustment for taxable equivalent yields
 
(0.37
)%
 
(0.50
)%
 
(0.49
)%
 
(0.45
)%
 
(0.18
)%
Adjustment for securities gains (losses)
 
 %
 
0.14
 %
 
 %
 
0.01
 %
 
 %
Adjustment for merger related income and costs
 
(0.24
)%
 
8.39
 %
 
(3.91
)%
 
(5.55
)%
 
(3.98
)%
Operating efficiency ratio (Non-GAAP)
 
62.42
 %
 
65.56
 %
 
64.25
 %
 
61.72
 %
 
67.17
 %
 
 
 
 
 
 
 
 
 
 
 
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).