Document Contents

United States Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020



☐	TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 001-37661

(Exact name of registrant as specified in its charter)



Tennessee		62-1173944
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

5401 Kingston Pike, Suite 600 Knoxville, Tennessee		37919
(Address of principal executive offices)		(Zip Code)

865-437-5700		Not Applicable
(Registrant’s telephone number, including area code)		(Former name, former address and former fiscal
		year, if changed since last report)

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	SMBK	The Nasdaq Stock Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or and emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act:

Large accelerated filer ☐

Accelerated filer ☒

Non-accelerated filer ☐

Smaller reporting company ☒

Emerging growth company ☐

If an emerging growth company, indicate by check market 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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of November 06, 2020, there were 15,235,227 shares of common stock, $1.00 par value per share, issued and outstanding.

Table of Contents

PART I –FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

SMARTFINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except for share data)


	(Unaudited)
	September 30,		December 31,
	2020		2019
ASSETS:
Cash and due from banks	$	63,884	$	33,205
Interest-bearing deposits with banks		411,625		127,329
Federal funds sold		66,306		23,437
Total cash and cash equivalents		541,815		183,971
Securities available-for-sale, at fair value		214,634		178,348
Other investments		14,829		12,913
Loans held for sale		11,292		5,856
Loans		2,404,057		1,897,392
Less: Allowance for loan losses		(18,817)		(10,243)
Loans, net		2,385,240		1,887,149
Premises and equipment, net		73,934		59,433
Other real estate owned		3,932		1,757
Goodwill and core deposit intangible, net		86,710		77,193
Bank owned life insurance		31,034		24,949
Other assets		24,168		17,554
Total assets	$	3,387,588	$	2,449,123

LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Noninterest-bearing demand	$	669,733	$	364,155
Interest-bearing demand		534,128		380,234
Money market and savings		871,098		623,284
Time deposits		577,064		679,541
Total deposits		2,652,023		2,047,214
Borrowings		319,391		31,623
Subordinated debt		39,325		39,261
Other liabilities		27,060		18,278
Total liabilities		3,037,799		2,136,376
Shareholders' equity:
Preferred stock, $1 par value; 2,000,000 shares authorized; No shares issued and outstanding		—		—
Common stock, $1 par value; 40,000,000 shares authorized; 15,233,227 and 14,008,233 shares issued and outstanding, respectively		15,233		14,008
Additional paid-in capital		254,626		232,732
Retained earnings		78,918		65,839
Accumulated other comprehensive income		1,012		168
Total shareholders' equity		349,789		312,747
Total liabilities and shareholders' equity	$	3,387,588	$	2,449,123

The accompanying notes are an integral part of the financial statements.

Table of Contents

SMARTFINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Dollars in thousands, except share and per share data)


		Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Interest income:
Loans, including fees	$	28,621	$	25,515	$	83,718	$	75,768
Securities available-for-sale:
Taxable		546		748		1,813		2,591
Tax-exempt		364		338		1,064		1,173
Federal funds sold and other earning assets		327		743		1,206		2,059
Total interest income		29,858		27,344		87,801		81,591
Interest expense:
Deposits		2,897		5,605		11,016		16,644
Borrowings		334		15		674		250
Subordinated debt		584		584		1,751		1,757
Total interest expense		3,815		6,204		13,441		18,651
Net interest income		26,043		21,140		74,360		62,940
Provision for loan losses		2,634		724		8,683		1,914
Net interest income after provision for loan losses		23,409		20,416		65,677		61,026
Noninterest income:
Service charges on deposit accounts		892		767		2,370		2,129
Gain (loss) on sale of securities		(9)		1		6		34
Mortgage banking		1,029		518		2,544		1,192
Investment services		359		260		1,159		684
Insurance commissions		560		—		1,302		—
Interchange and debit card transaction fees		868		148		1,652		467
Merger termination fee		—		—		—		6,400
Other		422		502		1,417		1,405
Total noninterest income		4,121		2,196		10,450		12,311
Noninterest expense:
Salaries and employee benefits		11,032		9,072		31,395		26,357
Occupancy and equipment		2,186		1,635		6,093		4,967
FDIC insurance		534		(219)		894		140
Other real estate and loan related expense		643		335		1,535		1,067
Advertising and marketing		253		263		653		817
Data processing		558		273		1,689		1,465
Professional services		594		573		2,172		1,724
Amortization of intangibles		402		341		1,169		1,027
Software as service contracts		573		560		1,604		1,696
Merger related and restructuring expenses		290		73		3,863		2,792
Other		2,102		1,802		5,699		5,045
Total noninterest expense		19,167		14,708		56,766		47,097
Income before income tax expense		8,363		7,904		19,361		26,240
Income tax expense		1,968		1,941		4,059		6,425
Net income	$	6,395	$	5,963	$	15,302	$	19,815
Earnings per common share:
Basic	$	0.42	$	0.43	$	1.03	$	1.42
Diluted		0.42		0.42	$	1.02	$	1.41
Weighted average common shares outstanding:
Basic		15,160,579		13,955,859		14,903,757		13,949,325
Diluted		15,210,611		14,053,432		14,965,455		14,038,414

The accompanying notes are an integral part of the financial statements.

Table of Contents

SMARTFINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in thousands)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
		2020		2019	2020		2019
Net income	$	6,395	$	5,963	$	15,302	$	19,815
Other comprehensive income:
Unrealized holding gains (losses) and hedge effects on securities available-for-sale arising during the period		77		(2,078)		2,980		3,383
Tax effect		(142)		543		(779)		(888)
Reclassification adjustment for realized gains (losses) included in net income		(9)		1		6		34
Tax effect		2		—		(2)		(9)
Unrealized gains (losses) on securities available-for-sale arising during the period, net of tax		(72)		(1,534)		2,205		2,520
Unrealized gains (losses) on fair value municipal security hedges		538		2,451		(1,843)		(70)
Tax effect		(46)		(643)		482		18
Unrealized gains (losses) on fair value municipal security hedge instruments arising during the period, net of tax		492		1,808		(1,361)		(52)

Total other comprehensive income		420		274		844		2,468
Comprehensive income	$	6,815	$	6,237	$	16,146	$	22,283

The accompanying notes are an integral part of the financial statements.

Table of Contents

SMARTFINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY - (Unaudited)

For the Three and Nine Months Ended September 30, 2020 and 2019

(Dollars in thousands, except for share data)


								Accumulated
								Other
	Common Stock			Additional		Retained		Comprehensive
	Shares	Amount		Paid-in Capital		Earnings		(Loss) Income		Total
Balance, December 31, 2018	13,933,504	$	13,933	$	231,852	$	39,991	$	(2,765)	$	283,011
Net income	—		—		—		19,815		—		19,815
Other comprehensive gain	—		—		—		—		2,468		2,468
Common stock issued pursuant to:
Stock awards	3,298		3		61		—		—		64
Exercise of stock options	21,171		22		228		—		—		250
Stock compensation expense	—		—		432		—		—		432
Balance, September 30, 2019	13,957,973	$	13,958	$	232,573	$	59,806	$	(297)	$	306,040

Balance, December 31, 2019	14,008,233	$	14,008	$	232,732	$	65,839	$	168	$	312,747
Net income	—		—		—		15,302		—		15,302
Other comprehensive gain	—		—		—		—		844		844
Common stock issued pursuant to:
Exercise of stock options	27,858		28		254		—		—		282
Restricted stock, net of forfeitures	36,113		36		(36)		—		—		—
Shareholders of Progressive Financial Group, Inc.	1,292,578		1,293		23,254		—		—		24,547
Stock compensation expense	—		—		365		—		—		365
Common stock dividend ($0.15 per share)	—		—		—		(2,223)		—		(2,223)
Repurchase of common stock	(131,555)		(132)		(1,943)		—		—		(2,075)
Balance, September 30, 2020	15,233,227	$	15,233	$	254,626	$	78,918	$	1,012	$	349,789

Balance, June 30, 2019	13,953,209	$	13,953	$	232,386	$	53,843	$	(571)	$	299,611
Net income	—		—		—		5,963		—		5,963
Other comprehensive gain	—		—		—		—		274		274
Common stock issued pursuant to:
Exercise of stock options	4,764		5		33		—		—		38


PART I –FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements (Unaudited)	3

	Consolidated Balance Sheets at September 30, 2020 and December 31, 2019	3

	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2020 and 2019	4

	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2020 and 2019	5

	Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, 2020 and 2019	6

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019	7

	Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	54

Item 4.	Controls and Procedures	54

PART II – OTHER INFORMATION		55

Item 1.	Legal Proceedings	55

Item 1A.	Risk Factors	55

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56

Item 3.	Defaults Upon Senior Securities	56

Item 4.	Mine Safety Disclosures	56

Item 5.	Other Information	56

Item 6.	Exhibits	57

Section 1: 10-Q (10-Q)