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Section 1: 8-K (8-K)

0001038773false00010387732020-10-202020-10-20

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 20, 2020

SMARTFINANCIAL, INC.

(Exact name of registrant as specified in its charter)

Tennessee

   

001-37661

    

62-1173944

(State or other jurisdiction of incorporation)

 

(Commission File Number)

 

(IRS Employer Identification No.)

5401 Kingston Pike, Suite 600

     

 

Knoxville, Tennessee

 

37919

(Address of Principal Executive Offices)

 

(Zip Code)

(865) 437-5700 

(Registrant’s telephone number, including area code)

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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 20, 2020, SmartFinancial, Inc. (“SmartFinancial”) issued a press release (the “Press Release”) reporting earnings results for its third quarter ending September 30, 2020. A copy of the Press Release is attached hereto as Exhibit 99.1.

In accordance with General Instructions B.2 of Form 8K, 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 liabilities 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 21, 2020. The slides are attached hereto as Exhibit 99.2.

In accordance with General Instructions B.2 of Form 8K, the information in Item 7.01 of this report (including Exhibit 99.2) shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities 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 2020 financial results dated October 20, 2020

99.2

Third quarter 2020 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 20, 2020

 

 

/s/ William Y. Carroll, Jr.

 

William Y. Carroll, Jr.

 

President & Chief Executive Officer

(Back To Top)

Section 2: EX-99.1 (EX-99.1)

Exhibit 99.1

Graphic

3Q 2020

SmartFinancial Announces Results for the Third Quarter 2020

KNOXVILLE, TN – October 20, 2020 - SmartFinancial, Inc. ("SmartFinancial" or the "Company"; NASDAQ: SMBK), today announced net income of $6.4 million, or $0.42 per diluted common share, for the third quarter of 2020, compared to net income of $6.2 million, or $0.41 per diluted common share for the second quarter of 2020.  Operating earnings (Non-GAAP), which excludes securities gains, merger related and restructuring expenses and non-operating items, totaled $6.6 million, or $0.44 per diluted common share, in the third quarter of 2020, compared to $7.3 million, or $0.48 per diluted common share, in the second quarter of 2020.

Highlights for the Third Quarter of 2020

Net income of $6.4 million and operating earnings of $6.6 million (Non-GAAP)
Tangible book value per share (Non-GAAP) of $17.27, a 5.5% year-over-year increase
Deposits increased by $604.8 million or 29.5% from December 31, 2019
COVID loan modifications declined 62.1% from prior quarter
Total nonperforming assets to total assets improved to 0.18% for the quarter, as compared to 0.28% in the prior quarter

Billy Carroll, President & CEO, stated: "We are extremely pleased with our results on another very solid quarter.  Our credit metrics continue to be outstanding and our projections on loan modifications have been right on target and reducing as we have planned.  This tremendous asset quality, coupled with the work we are doing on growth in our noninterest income and improvement in efficiency give us reason to feel very good regarding the outlook for our company.”

SmartFinancial's Chairman, Miller Welborn, concluded: “The quarter was, once again, strong and right on plan for SmartFinancial. Our Board is extremely happy with the continued progress and improvements that we are making every day. 2020 has certainly been a challenge, but our team has executed superbly.”

Net Interest Income and Net Interest Margin

Net interest income increased $297 thousand to $26.0 million for the third quarter of 2020, compared to $25.7 million for the second quarter of 2020, due to a higher balance of interest-earning assets at lower yields supplemented by increased balances of interest-bearing liabilities at lower costs. Average earning assets totaled $3.1 billion, an increase of $205.8 million, which reflects a $51.1 million increase in average loans, a $12.4 million increase in average securities and a $141.1 million increase in average other earning assets. Average interest-bearing liabilities increased by $137.0 million to $2.3 billion, driven by an increase of $54.9 million in average interest-bearing deposits and an increase of $82.1 million in average borrowings.

The tax equivalent net interest margin was 3.39% for the third quarter of 2020, compared to 3.63% for the second quarter of 2020. The tax equivalent net interest margin was impacted by a 34 basis point decline in the average yield on interest-earning assets offset by a 12 basis point decline in the rate on interest-bearing liabilities over the last quarter. The excess liquidity realized during the third quarter, which is reflected in the increases in the average balance of Federal funds sold and other earning assets, had a negative impact on the tax equivalent net interest margin of 15 bps. The tax equivalent net interest margin, less discount accretion was 3.26% for the third quarter of 2020, a decrease from 3.50% for the second quarter of 2020.

The tax equivalent average yield on interest-earning assets was 3.88% for the third quarter of 2020, a decrease from 4.22% for the second quarter of 2020. The yield on average loans was 4.71% for the third quarter of 2020, compared to 4.87% for the second quarter of 2020. Included in the yield on average loans for the third quarter of 2020 was $1.8 million of the Payroll Protection Program (“PPP”) fee accretion and $960 thousand of discount accretion on acquired loans, compared to $1.9 million of PPP fee accretion and $888 thousand of discount accretion recognized in the second quarter of 2020.

Graphic


The yield on interest-bearing liabilities decreased to 0.65% for the third quarter of 2020 when compared to 0.77% for the second quarter of 2020. The cost of average interest-bearing deposits was 0.59% for the third quarter of 2020 compared to 0.71% for the second quarter of 2020, a decrease of 12 basis points. The lower cost of average deposits was attributable to the maturing and repricing of time deposits, with average costs decreasing 20 basis points.  The cost of total deposits for the third quarter of 2020 was 0.44%.

The following table presents selected interest rates and yields for the periods indicated:

Three Months Ended

Sep

Jun

Increase

Selected Interest Rates and Yields

2020

2020

(Decrease)

Yield on loans

4.71

%

4.87

%

(0.17)

%

Yield on earning assets, FTE

3.88

%

4.22

%

(0.34)

%

Cost of interest-bearing deposits

0.59

%

0.71

%

(0.12)

%

Cost of total deposits

0.44

%

0.54

%

(0.10)

%

Cost of interest-bearing liabilities

0.65

%

0.77

%

(0.12)

%

Net interest margin, FTE

3.39

%

3.63

%

(0.24)

%

Provision for Loan Loss and Credit Quality

Provision for loan losses was $2.6 million in the third quarter of 2020, compared to $2.9 million in the second quarter of 2020.  At September 30, 2020, the allowance for loan losses was $18.8 million.  The allowance for loan losses to total loans was 0.78% as of September 30, 2020, compared to 0.67% as of June 30, 2020.  For the Company’s originated loans, the allowance for loan losses to originated loans, less PPP loans, was 1.00% as of September 30, 2020, compared to 0.89% as of June 30, 2020.  The remaining discounts on the acquired loan portfolio totaled $15.1 million, or 3.53% of acquired loans as of September 30, 2020.  The increase in the allowance for loan losses for the third quarter is primarily attributable to the ongoing economic uncertainties related to the COVID-19 pandemic.  Also, during the quarter, the Company refined the qualitative factors of the allowance for loan loss calculation to include additional granularity related to the hospitality and restaurant industries which are most impacted by the pandemic within our footprint at this time.

As of June 30, 2020, the Company had modified loans totaling $615.7 million, or 25.6%, of the loan portfolio.  As of September 30, 2020, $383.2 million of those modifications had resumed their normal payment schedule leaving $232.5 million, or 9.7%, still under modification plans.

The following table presents detailed information related to the provision for loan losses for the periods indicated (dollars in thousands):

Three Months Ended

Sep

Jun

Provision for Loan Losses Rollforward

2020

2020

Change

Beginning balance

$

16,254

$

13,431

$

2,823

Charge-offs

(174)

(75)

(99)

Recoveries

103

48

55

Net charge-offs

(71)

(27)

(44)

Provision

2,634

2,850

(216)

Ending balance

$

18,817

$

16,254

$

2,563

Allowance for loan losses to total loans, gross

0.78

%

0.67

%

0.11

%

The Company is not required to implement the provisions of the CECL accounting standard until January 1, 2023 and is continuing to account for the allowance for loan losses under the incurred loss model.

Nonperforming loans as a percentage of total loans was 0.09% as of September 30, 2020, a decrease of seven basis points from the 0.16% reported in the second quarter of 2020.  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 0.18% as of September 30, 2020, as compared to 0.28% as of June 30, 2020. 

Graphic

2


The following table presents detailed information related to credit quality for the periods indicated (dollars in thousands):

Three Months Ended

Sep

Jun

Increase

Credit Quality

2020

2020

(Decrease)

Nonaccrual loans

$

2,248

$

2,899

$

(651)

Loans past due 90 days or more and still accruing

-

877

(877)

Total nonperforming loans

2,248

3,776

(1,528)

Other real estate owned

3,932

5,524

(1,592)

Total nonperforming assets

$

6,180

$

9,300

$

(3,120)

Nonperforming loans to total loans, gross

0.09

%

0.16

%

(0.07)

%

Nonperforming assets to total assets

0.18

%

0.28

%

(0.10)

%

Noninterest Income

Noninterest income increased $610 thousand to $4.1 million for the third quarter of 2020 compared to $3.5 million for the second quarter of 2020.  During the third quarter of 2020, the primary components of the changes in noninterest income were as follows:

Increase in service charges on deposit accounts of $183 thousand, primarily related to increased volume;  
Increase in mortgage banking income of $98 thousand, continued to experience high volume during the quarter; and
Increase in interchange and debit card transaction fees of $360 thousand, includes a $130 thousand one-time credit from vendor.

The following table presents detailed information related to noninterest income for the periods indicated (dollars in thousands):

Three Months Ended

Sep

Jun

Increase

Noninterest Income

2020

2020

(Decrease)

Service charges on deposit accounts

$

892

$

709

$

183

Gain (loss) on sale of securities, net

(9)

16

(25)

Mortgage banking income

1,029

931

98

Investment services

359

363

(4)

Insurance commissions

560

473

87

Interchange and debit card transaction fees

868

508

360

Other

422

511

(89)

Total noninterest income

$

4,121

$

3,511

$

610

Noninterest Expense

Noninterest expense was $19.2 million for the third quarter of 2020 compared to $18.8 million for the second quarter of 2020. During the third quarter of 2020, the primary components of the changes in noninterest expense were as follows:

Salaries and employee benefits increased $675 thousand, increase is primarily attributable to the deferred salary cost in the second quarter related to the origination of PPP loans;
FDIC insurance increased $354 thousand related to increase in assets due to overall asset growth stemming from our recent acquisition, deposit growth and production of PPP loans;  
Other real estate and loan related expenses increased $297 thousand, primarily attributable to increased activity in loan related production and a $90 thousand evaluation adjustment on other real estate owned;
Professional services decreased $274 thousand, due to a lower volume of expenses;
Decrease of $1.2 million in merger related and restructuring expenses; and
Other noninterest expenses increased $282 thousand, due to overall franchise growth.

Graphic

3


The following table presents detailed information related to noninterest expense for the periods indicated (dollars in thousands):

Three Months Ended

Sep

Jun

Increase

Noninterest Expense

2020

2020

(Decrease)

Salaries and employee benefits

$

11,032

$

10,357

$

675

Occupancy and equipment

2,186

1,996

190

FDIC insurance

534

180

354

Other real estate and loan related expenses

643

346

297

Advertising and marketing

253

202

51

Data processing

558

594

(36)

Professional services

594

868

(274)

Amortization of intangibles

402

405

(3)

Software as service contracts

573

561

12

Merger related and restructuring expenses

290

1,477

(1,187)

Other

2,102

1,820

282

Total noninterest income

$

19,167

$

18,806

$

361

Income Tax Expense

Income tax expense was $2.0 million for the third quarter of 2020, an increase of $541 thousand, compared to $1.4 million for the second quarter of 2020.

For the third quarter of 2020, the effective tax rate was 23.5% compared to 18.8% for the second quarter of 2020.  The lower effective tax rate during the second quarter of 2020 included an additional tax benefit from the Company’s overall reconciliation of the tax rates from operations, and the final effects of the CARES Act legislation.

Balance Sheet Trends

Total assets at September 30, 2020, were $3.39 billion compared with $2.45 billion at December 31, 2019.  The increase of $938.5 million is primarily attributable to assets acquired from the acquisition of Progressive Financial Group (“PFG”) of approximately $308.2 million, increase in cash and cash equivalents of $301.8 million and the origination of $300.8 million of PPP loans.

Total liabilities increased to $3.04 billion at September 30, 2020 from $2.14 billion at December 31, 2019.  The increase of $901.4 million was primarily from deposit growth of $332.8 million, acquired deposits from the acquisition of PFG in the amount of $272.0 million, and an increase in borrowings of $287.8 million.

Shareholders' equity at September 30, 2020, totaled $349.8 million, an increase of $37.0 million, from December 31, 2019.  The increase in shareholders' equity was primarily from the issuance of common stock for the acquisition of PFG of $24.5 million, net income of $15.3 million for the nine months ended September 30, 2020 and a net change in accumulated other comprehensive income of $844 thousand, which was offset by the repurchase of the Company's common stock of $2.1 million and $2.2 million of dividends paid. Tangible book value per share (Non-GAAP) was $17.27 at September 30, 2020, an increase from $16.82 at December 31, 2019.  Tangible common equity (Non-GAAP) as a percentage of tangible assets (Non-GAAP) was 7.97% at September 30, 2020, compared with 9.93% at December 31, 2019.

The following table presents selected balance sheet information for the periods indicated (dollars in thousands):

Sep

Dec

Increase

Selected Balance Sheet Information

2020

2019

(Decrease)

Total assets

$

3,387,588

$

2,449,123

$

938,465

Total liabilities

3,037,799

2,136,376

901,423

Total equity

349,789

312,747

37,042

Securities available-for-sale, at fair value

214,634

178,348

36,286

Loans

2,404,057

1,897,392

506,665

Deposits

2,652,023

2,047,214

604,809

Borrowings

319,391

31,623

287,768

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4


Conference Call Information

SmartFinancial issued this earnings release for the third quarter of 2020 on Tuesday, October 20, 2020, and will host a conference call on Wednesday, October 21, 2020, at 10:00 a.m. ET.  To access this interactive teleconference, dial (888) 317-6003 or (412) 317-6061 and enter the confirmation number, 9589795.  A replay of the conference call will be available through October 21, 2021, by dialing (877) 344-7529 or (412) 317-0088 and entering the confirmation number, 10148910.  Conference call materials 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.

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 36 branches across East and Middle 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]

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5


Non-GAAP Financial Measures

Statements included in this earnings release include measures not recognized under U.S. generally accepted accounting principles (“GAAP”) and therefore are considered 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) operating earnings, (ii) operating return on average assets, (iii) operating pre-tax pre-provision return on average assets (iv) operating return on average shareholder' equity, (v) return on average tangible common equity, (vi) operating return on average tangible common equity, (vii) operating efficiency ratio, (viii) operating noninterest income, (ix) operating pre-tax pre-provision income (x) operating noninterest expense, (xi) tangible common equity, (xii) average tangible common equity, (xiii) tangible book value, (xiv) tax equivalent net interest margin, (xv) tax equivalent average yield in earning assets; and ratios derived therefrom, in its analysis of the company's performance. Operating earnings excludes the following from net income: securities gains and losses, expenses related to the termination of an Alabama Department of Economic and Community Affairs (“ADECA”) loan program, merger termination fee of $6.4 million in the second quarter of 2019, merger related and restructuring expenses.  Operating return on average assets is the annualized operating earnings divided by average assets.  Operating pre-tax pre-provision return on average assets is the annualized operating pre-tax pre-provision income divided by average assets. Operating return on average shareholders' equity is the annualized operating earnings divided by average equity. Return on average tangible common equity is the annualized net income divided by average tangible common equity. Operating return on average tangible common equity is the annualized 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. Operating noninterest income excludes the following from noninterest income: securities gains and losses, expenses related to the termination of the ADECA loan program and the merger termination fee of $6.4 million in the second quarter of 2019.  Operating pre-tax pre-provision income is net interest expense plus operating noninterest income less operating noninterest expense.  Operating noninterest expense excludes the following from noninterest expense: prior year adjustments to salaries, merger related and restructuring expenses and certain franchise tax true-up expenses. Tangible common equity and average tangible common equity excludes goodwill and other intangible assets from shareholders' equity and average shareholders' equity, respectively.  Tangible book value is tangible common equity divided by common shares outstanding.  Tax equivalent net interest margin is the annualized net interest income plus tax equivalent income divided by average interest earning assets. Tax equivalent average yield in earning assets is the annualized interest income plus tax equivalent income divided by average interest earning assets. 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.

Graphic

6


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 the Private Securities Litigation Reform Act of 1995.  These statements, including statements regarding the potential effects of the COVID-19 pandemic on the Company’s business and financial results and conditions, 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) risks associated with our growth strategy, including a failure to implement our growth plans or an inability to manage our growth effectively; (2) claims and litigation arising from our business activities and from the companies we acquire, which may relate to contractual issues, environmental laws, fiduciary responsibility, and other matters; (3) the risk that cost savings and revenue synergies from recently completed acquisitions may not be realized or may take longer than anticipated to realize; (4) disruption from recently completed acquisitions with customer, supplier, employee, or other business relationships; (5) our ability to successfully integrate the businesses acquired as part of previous acquisitions with the business of SmartBank; (6) risks related to the completed acquisition of PFG; (7) the risk that the anticipated benefits from the completed acquisition of PFG may not be realized in the time frame anticipated; (8) changes in management’s plans for the future; (9) prevailing, or changes in, economic or political conditions, particularly in our market areas; (10) credit risk associated with our lending activities; (11) changes in interest rates, loan demand, real estate values, or competition; (12) changes in accounting principles, policies, or guidelines; (13) changes in applicable laws, rules, or regulations, including changes to statutes, regulations or regulatory policies or practices as a result of, or in response to COVID-19; (14) adverse results from current or future litigation, regulatory examinations or other legal and/or regulatory actions, including as a result of the Company’s participation in and execution of government programs related to the COVID-19 pandemic; (15) the impact of the COVID-19 pandemic on the Company’s assets, business, cash flows, financial condition, liquidity, prospects and results of operations; (16) potential increases in the provision for loan losses resulting from the COVID-19 pandemic; and (17) 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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7


SmartFinancial, Inc. and Subsidiary

Condensed Consolidated Financial Information - (unaudited)

(dollars in thousands)

Ending Balances

Sep

    

Jun

    

Mar

    

Dec

    

Sep

2020

2020

2020

2019

2019

Assets:

 

  

 

  

 

  

 

  

Cash and cash equivalents

$

541,815

$

399,467

$

309,089

$

183,971

$

170,934

Securities available-for-sale, at fair value

 

214,634

 

219,631

 

201,002

 

178,348

 

171,507

Other investments

 

14,829

 

14,829

 

14,113

 

12,913

 

12,913

Loans held for sale

 

11,292

 

6,330

 

6,045

 

5,856

 

3,068

Loans

 

2,404,057

 

2,408,284

 

2,139,247

 

1,897,392

 

1,864,679

Less: Allowance for loan losses

 

(18,817)

 

(16,254)

 

(13,431)

 

(10,243)

 

(9,792)

Loans, net

 

2,385,240

 

2,392,030

 

2,125,816

 

1,887,149

 

1,854,887

Premises and equipment, net

 

73,934

 

73,868

 

73,801

 

59,433

 

58,386

Other real estate owned

 

3,932

 

5,524

 

5,894

 

1,757

 

1,561

Goodwill and core deposit intangibles, net

 

86,710

 

86,327

 

86,503

 

77,193

 

77,534

Bank owned life insurance

 

31,034

 

30,853

 

30,671

 

24,949

 

24,796

Other assets

 

24,168

 

37,126

 

20,781

 

17,554

 

14,899

Total assets

$

3,387,588

$

3,265,985

$

2,873,715

$

2,449,123

$

2,390,485

Liabilities:

 

  

 

  

 

  

 

  

 

  

Deposits:

 

  

 

  

 

  

 

  

 

  

Noninterest-bearing demand

$

669,733

$

645,650

$

431,781

$

364,155

$

365,024

Interest-bearing demand

 

534,128

 

479,212

 

444,141

 

380,234

 

351,474

Money market and savings

 

871,098

 

762,246

 

730,392

 

623,284

 

634,934

Time deposits

 

577,064

 

652,581

 

735,616

 

679,541

 

646,641

Total deposits

 

2,652,023

 

2,539,689

 

2,341,930

 

2,047,214

 

1,998,073

Borrowings

 

319,391

 

318,855

 

131,603

 

31,623

 

29,828

Subordinated debt

 

39,325

 

39,304

 

39,283

 

39,261

 

39,240

Other liabilities

 

27,060

 

24,649

 

24,699

 

18,278

 

17,304

Total liabilities

 

3,037,799

 

2,922,497

 

2,537,515

 

2,136,376

 

2,084,445

Shareholders' Equity:

 

  

 

  

 

  

 

  

 

  

Common stock

 

15,233

 

15,217

 

15,222

 

14,008

 

13,958

Additional paid-in capital

 

254,626

 

254,396

 

254,356

 

232,732

 

232,573

Retained earnings

 

78,918

 

73,283

 

67,869

 

65,839

 

59,806

Accumulated other comprehensive income (loss)

 

1,012

 

592

 

(1,247)

 

168

 

(297)

Total shareholders' equity

 

349,789

 

343,488

 

336,200

 

312,747

 

306,040

Total liabilities & shareholders' equity

$

3,387,588

$

3,265,985

$

2,873,715

$

2,449,123

$

2,390,485

Graphic

8


SmartFinancial, Inc. and Subsidiary

Condensed Consolidated Financial Information - (unaudited)

(dollars in thousands except share and per share data)

Three Months Ended

 

Nine Months Ended

Sep

    

Jun

    

Mar

    

Dec

    

Sep

    

Sep

    

Sep

2020

2020

2020

2019

2019

2020

2019

Interest income:

  

 

  

 

  

 

  

 

  

Loans, including fees

$

28,621

$

28,663

$

26,434

$

25,398

$

25,515

$

83,718

$

75,768

Securities available-for-sale:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Taxable

 

546

 

589

 

679

 

698

 

748

 

1,813

 

2,591

Tax-exempt

 

364

 

416

 

283

 

345

 

338

 

1,064

 

1,173

Federal funds sold and other earning assets

 

327

 

277

 

602

 

587

 

743

 

1,206

 

2,059

Total interest income

 

29,858

 

29,945

 

27,998

 

27,028

 

27,344

 

87,801

 

81,591

Interest expense:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Deposits

 

2,897

 

3,366

 

4,754

 

5,271

 

5,605

 

11,016

 

16,644

Borrowings

 

334

 

249

 

89

 

70

 

15

 

674

 

250

Subordinated debt

 

584

 

584

 

584

 

584

 

584

 

1,751

 

1,757

Total interest expense

 

3,815

 

4,199

 

5,427

 

5,924

 

6,204

 

13,441

 

18,651

Net interest income

 

26,043

 

25,746

 

22,571

 

21,104

 

21,140

 

74,360

 

62,940

Provision for loan losses

 

2,634

 

2,850

 

3,200

 

685

 

724

 

8,683

 

1,914

Net interest income after provision for loan losses

 

23,409

 

22,896

 

19,371

 

20,419

 

20,416

 

65,677

 

61,026

Noninterest income:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Service charges on deposit accounts

 

892

 

709

 

770

 

773

 

767

 

2,370

 

2,129

Gain (loss) on sale of securities, net

 

(9)

 

16

 

 

 

1

 

6

 

34

Mortgage banking

 

1,029

 

931

 

584

 

374

 

518

 

2,544

 

1,192

Investment services

 

359

 

363

 

437

 

261

 

260

 

1,159

 

684

Insurance commissions

 

560

 

473

 

269

 

 

 

1,302

 

Interchange and debit card transaction fees

 

868

 

508

 

276

 

163

 

148

 

1,652

 

467

Merger termination fee

 

 

 

 

 

 

 

6,400

Other

 

422

 

511

 

482

 

1,269

 

502

 

1,417

 

1,405

Total noninterest income

 

4,121

 

3,511

 

2,818

 

2,840

 

2,196

 

10,450

 

12,311

Noninterest expense:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Salaries and employee benefits

 

11,032

 

10,357

 

10,006

 

10,278

 

9,072

 

31,395

 

26,357

Occupancy and equipment

 

2,186

 

1,996

 

1,911

 

1,749

 

1,635

 

6,093

 

4,967

FDIC insurance

 

534

 

180

 

180

 

 

(219)

 

894

 

140

Other real estate and loan related expense

 

643

 

346

 

545

 

253

 

335

 

1,535

 

1,067

Advertising and marketing

 

253

 

202

 

198

 

166

 

263

 

653

 

817

Data processing

 

558

 

594

 

538

 

530

 

273

 

1,689

 

1,465

Professional services

 

594

 

868

 

711

 

652

 

573

 

2,172

 

1,724

Amortization of intangibles

 

402

 

405

 

362

 

340

 

341

 

1,169

 

1,027

Software as service contracts

 

573

 

561

 

470

 

500

 

560

 

1,604

 

1,696

Merger related and restructuring expenses

 

290

 

1,477

 

2,096

 

427

 

73

 

3,863

 

2,792

Other

 

2,102

 

1,820

 

1,776

 

1,157

 

1,802

 

5,699

 

5,045

Total noninterest expense

 

19,167

 

18,806

 

18,793

 

16,052

 

14,708

 

56,766

 

47,097

Income before income taxes

 

8,363

 

7,601

 

3,396

 

7,206

 

7,904

 

19,361

 

26,240

Income tax expense

 

1,968

 

1,427

 

664

 

473

 

1,941

 

4,059

 

6,425

Net income

$

6,395

$

6,174

$

2,732

$

6,733

$

5,963

$

15,302

$

19,815

Earnings per common share:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Basic

$

0.42

$

0.41

$

0.19

$

0.48

$

0.43

$

1.03

$

1.42

Diluted

$

0.42

$

0.41

$

0.19

$

0.48

$

0.42

$

1.02

$

1.41

Weighted average common shares outstanding:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Basic

 

15,160,579

 

15,152,768

 

14,395,103

 

13,965,877

 

13,955,859

 

14,903,757

 

13,949,325

Diluted

 

15,210,611

 

15,202,335

 

14,479,679

 

14,066,269

 

14,053,432

 

14,965,455

 

14,038,414

Graphic

9


SmartFinancial, Inc. and Subsidiary

Condensed Consolidated Financial Information - (unaudited)

(dollars in thousands)

YIELD ANALYSIS

Three Months Ended

 

September 30, 2020

June 30, 2020

September 30, 2019

 

    

Average

    

    

Yield/

    

Average

    

    

Yield/

    

Average

    

  

    

Yield/

 

Balance

Interest1

Cost1

Balance

Interest1

Cost1

Balance

Interest1

Cost1

 

Assets:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Loans, including fees2

$

2,410,173

$

28,508

 

4.71

%  

$

2,359,101

$

28,590

 

4.87

%  

$

1,842,007

$

25,471

 

5.49

%

Loans held for sale

8,048

113

5.57

%  

6,868

73

4.28

%  

4,189

44

4.17

%  

Taxable securities

 

132,642

 

546

 

1.64

%  

 

122,135

 

589

 

1.94

%  

 

118,955

 

748

 

2.49

%

Tax-exempt securities

 

88,129

 

515

 

2.32

%  

 

86,227

 

570

 

2.66

%  

 

56,598

 

448

 

3.14

%

Federal funds sold and other earning assets

 

438,785

 

327

 

0.30

%  

 

297,696

 

277

 

0.37

%  

 

135,444

 

743

 

2.18

%

Total interest-earning assets

 

3,077,777

 

30,009

 

3.88

%  

 

2,872,027

 

30,099

 

4.22

%  

 

2,157,193

 

27,454

 

5.05

%

Noninterest-earning assets

 

262,764

 

 

 

260,089

 

  

 

  

 

191,940

 

  

 

  

Total assets

$

3,340,541

$

3,132,116

 

  

 

  

$

2,349,133

 

  

 

  

Liabilities and Stockholders’ Equity:

 

  

 

  

  

 

  

 

  

 

  

 

  

 

  

 

  

Interest-bearing demand deposits

$

509,999

 

199

0.16

%  

$

453,795

 

148

 

0.13

%  

$

343,827

 

511

 

0.59

%

Money market and savings deposits

 

833,022

 

704

0.34

%  

 

748,673

 

614

 

0.33

%  

 

637,290

 

1,829

 

1.14

%

Time deposits

 

615,714

 

1,994

1.29

%  

 

701,390

 

2,604

 

1.49

%  

 

640,679

 

3,265

 

2.02

%

Total interest-bearing deposits

 

1,958,735

 

2,897

0.59

%  

 

1,903,858

 

3,366

 

0.71

%  

 

1,621,796

 

5,605

 

1.37

%

Borrowings3

 

319,265

 

334

0.42

%  

 

237,143

 

249

 

0.42

%  

 

13,310

 

15

 

0.45

%

Subordinated debt

 

39,311

 

584

5.91

%  

 

39,290

 

584

 

5.98

%  

 

39,226

 

584

 

5.91

%

Total interest-bearing liabilities

 

2,317,311

 

3,815

0.65

%  

 

2,180,291

 

4,199

 

0.77

%  

 

1,674,332

 

6,204

 

1.47

%

Noninterest-bearing deposits

 

649,489

 

 

587,322

 

  

 

  

 

353,315

 

  

 

  

Other liabilities

 

25,834

 

 

24,642

 

  

 

  

 

18,286

 

  

 

  

Total liabilities

 

2,992,634

 

 

2,792,255

 

  

 

  

 

2,045,933

 

  

 

  

Shareholders' equity

 

347,907

 

 

339,861

 

  

 

  

 

303,200

 

  

 

  

Total liabilities and shareholders' equity

$

3,340,541

$

3,132,116

 

  

 

  

$

2,349,133

 

  

 

  

Net interest income, taxable equivalent

$

26,194

 

  

$

25,900

 

  

 

  

$

21,250

 

  

Interest rate spread

 

 

3.22

%  

 

  

 

  

 

3.44

%  

 

  

 

  

 

3.58

%  

Tax equivalent net interest margin

 

 

3.39

%  

 

  

 

  

 

3.63

%  

 

  

 

  

 

3.91

%  

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

 

 

132.82

%  

 

  

 

  

 

131.73

%  

 

  

 

  

 

128.84

%  

Percentage of average equity to average assets

 

 

10.41

%  

 

  

 

  

 

10.85

%  

 

  

 

  

 

12.91

%  

1 Taxable equivalent

2 Includes average balance of $295,045 and $208,814 in PPP loans for the quarters ended September 30, 2020 and June 30, 2020, respectively.

3 Includes average balance of $237,780 and $108,082 in Paycheck Protection Program Liquidity Facility (“PPPLF”) funding for the quarters ended September 30, 2020 and June 30, 2020, respectively.

Graphic

10


SmartFinancial, Inc. and Subsidiary

Condensed Consolidated Financial Information - (unaudited)

(dollars in thousands)

YIELD ANALYSIS

Nine Months Ended

September 30, 2020

September 30, 2019

    

Average

    

    

Yield/

    

Average

    

    

Yield/

    

Balance

Interest1

Cost1

Balance

Interest1

Cost1

Assets:

 

  

 

  

 

  

 

  

 

  

 

  

 

Loans, including fees2

$

2,252,075

$

83,487

 

4.95

%  

$

1,823,523

$

75,645

 

5.55

%  

Loans held for sale

6,409

231

4.81

%  

3,589

123

4.58

%  

Taxable securities

 

123,895

 

1,813

 

1.95

%  

 

134,230

 

2,591

 

2.58

%  

Tax-exempt securities

 

81,604

 

1,486

 

2.43

%  

 

55,585

 

1,512

 

3.64

%  

Federal funds sold and other earning assets

 

296,449

 

1,206

 

0.54

%  

 

102,528

 

2,056

 

2.68

%  

Total interest-earning assets

 

2,760,432

 

88,223

 

4.27

%  

 

2,119,455

 

81,927

 

5.17

%  

Noninterest-earning assets

 

248,293

 

 

 

205,984

 

  

 

  

Total assets

$

3,008,725

$

2,325,439

 

  

 

  

Liabilities and Stockholders’ Equity:

 

  

 

  

 

  

 

  

 

  

 

  

Interest-bearing demand deposits

$

451,074

 

782

 

0.23

%  

$

326,764

 

1,397

 

0.57

%  

Money market and savings deposits

 

749,316

 

2,707

 

0.48

%  

 

658,358

 

6,131

 

1.25

%  

Time deposits

 

667,303

 

7,527

 

1.51

%  

 

635,986

 

9,116

 

1.92

%  

Total interest-bearing deposits

 

1,867,693

 

11,016

 

0.79

%  

 

1,621,108

 

16,644

 

1.37

%  

Borrowings3

 

203,202

 

674

 

0.44

%  

 

18,377

 

250

 

1.82

%  

Subordinated debt

 

39,290

 

1,751

 

5.95

%  

 

39,205

 

1,757

 

5.99

%  

Total interest-bearing liabilities

 

2,110,185

 

13,441

 

0.85

%  

 

1,678,690

 

18,651

 

1.49

%  

Noninterest-bearing deposits

 

537,860

 

 

 

336,895

 

  

 

Other liabilities

 

23,826

 

 

 

14,509

 

  

 

Total liabilities

 

2,671,871

 

 

 

2,030,094

 

  

 

Shareholders' equity

 

336,854

 

 

 

295,345

 

  

 

Total liabilities and shareholders' equity

$

3,008,725

$

2,325,439

 

  

 

Net interest income, taxable equivalent

$

74,782

 

  

$

63,276

 

Interest rate spread

 

 

 

3.42

%  

 

  

 

  

 

3.68

%  

Tax equivalent net interest margin

 

 

 

3.62

%  

 

  

 

  

 

3.99

%