SMARTFINANCIAL INC. - FORM 8-K - EX-99..1 - EXHIBIT 99..1

Attached files

file	filename
EX-99.2 - EXHIBIT 99.2 - SMARTFINANCIAL INC.	a123119earningsexhibit99.htm
8-K - 8-K - SMARTFINANCIAL INC.	a2019q4earningsreleasecover.htm

Exhibit 99.1

4Q 2019

SmartFinancial Announces Results for the Fourth Quarter 2019

KNOXVILLE, TN - January 21, 2020 - SmartFinancial, Inc. ("SmartFinancial" or the "Company"; NASDAQ: SMBK), today announced net income of $6.7 million, or $0.48 per diluted common share, for the fourth quarter of 2019, compared to net income of $6.0 million, or $0.42 per diluted common share, for the third quarter of 2019. Net operating earnings (Non-GAAP), which excludes securities gains, merger related and restructuring expenses and non-operating items, totaled $6.5 million, or $0.46 per diluted common share, in the fourth quarter of 2019, compared to $6.0 million, or $0.43 per diluted common share, in the third quarter of 2019.

For the year ending December 31, 2019, net income is $26.5 million, or $1.89 per diluted common share, compared to net income of $18.1 million, or $1.45 per diluted common share, for the year ending December 31, 2018. Net operating earnings (Non-GAAP), which excludes securities gains, merger related and restructuring expenses and non-operating items, totaled $23.6 million, or $1.68 per diluted common share, for the year ending December 31, 2019 compared to $19.5 million, or $1.56 per diluted common share, for the year ending December 31, 2018.

Highlights for Fourth Quarter of 2019


•	Return on average assets of 1.12% and net operating annualized return on average assets (Non-GAAP) of 1.08%


•	Asset quality remains outstanding with nonperforming assets to total assets of 0.21%


•	Loan growth of $32.7 million, or 7.0% annualized


•	Tangible book value (Non-GAAP) per share of $16.82, a 14.9% year-over-year increase


•	Announced the planned acquisition of Progressive Financial Group, Inc. ("PFG")


•	Initiation of a quarterly dividend

Billy Carroll, President & CEO, stated: “We posted a solid quarter and closed the books on another successful year where we made a number of outstanding foundational strides. Our team continues to focus on steady growth of our performance metrics and we remain bullish on our opportunities to move the company forward and continuing growth of shareholder value.”

SmartFinancial's Chairman, Miller Welborn, concluded: “The consistency we are beginning to show in all areas of our company, especially our financial metrics, is very exciting to me. Our team continues to improve their execution of our strategy while maintaining a laser focus on growing long term shareholder value.”

Net Interest Income and Net Interest Margin

Net interest income was $21.1 million for each of the fourth and third quarters of 2019 and $21.4 million for the fourth quarter of 2018. The tax equivalent net interest margin was 3.84% for the fourth quarter of 2019 compared to 3.91% for the third quarter of 2019. The tax equivalent average yield on interest-earning assets was 4.92% for the fourth quarter of 2019, a decrease from 5.05% for the third quarter of 2019. The yield on interest-bearing liabilities decreased to 1.39% for the fourth quarter of 2019 from 1.47% for the third quarter of 2019.

The yield on average loans was 5.36% for the fourth quarter of 2019 compared to 5.48% for the third quarter of 2019. The decrease in yield on average loans from the third to fourth quarters of 2019 was primarily due to the impact of three Federal rate decreases over these two quarters which effected the repricing of variable rate loans and new loan production. During the fourth quarter of 2019, increased discount accretion was recorded on acquired loans (29 basis points in the fourth quarter of 2019 versus 26 basis points in the third quarter of 2019) with loan fees remaining stable quarter over quarter. For the fourth quarter of 2019, the yield on average loans, excluding accretion, was 5.07%, a decrease of 15 basis points from the 5.22% reported in the third quarter of

2019. The impact of the acquired loan discount accretion on the tax equivalent net interest margin was 25 basis points for the fourth quarter of 2019 and 23 basis points for the third quarter of 2019.

The cost of average interest-bearing deposits was 1.29% for the fourth quarter of 2019 compared to 1.37% for the third quarter of 2019. The overall decrease of eight basis points in average interest-bearing deposits from the third to fourth quarter of 2019 was driven primarily by the three Federal rate decreases during the third and fourth quarters of 2019, creating a reduction of interest cost for all deposit classifications.

Provision for Loan Loss and Credit Quality

Provision for loan losses was $685 thousand in the fourth quarter of 2019, compared to $724 thousand in the third quarter of 2019 and $1.3 million in the fourth quarter of 2018. The allowance for loan losses was $10.2 million, or 0.54% of total loans, as of December 31, 2019, compared to $9.8 million, or 0.53% of total loans, as of September 30, 2019. The increase in allowance for loan losses to total loans was due primarily to the increase in the loan originations and, to lesser extent, the reduction of acquired loan balances.

Nonperforming loans as a percentage of total loans was 0.18% as of December 31, 2019, an increase of one basis point from the 0.17% reported in the third 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 0.21% as of December 31, 2019 as compared to 0.20% as of September 30, 2019.

Noninterest Income

Noninterest income was $2.8 million for the fourth quarter of 2019 compared to $2.2 million for the third quarter of 2019. The increase of $644 thousand from the third quarter 2019 to the fourth quarter 2019 was primarily because of funds received from the Alabama Department of Economic and Community Affairs ("ADECA"). ADECA was a program that guaranteed 50% of a loans obligation for loan's approved and originated through the program. In September 2019, the ADECA program was dissolved and in October 2019 total proceeds of $1.2 million was received, of which $720 thousand was recorded as noninterest income, and the remainder of the proceeds were held in reserve for potential future losses on specific identified loans that were covered in the program.

Noninterest Expense

Noninterest expense was $16.1 million for the fourth quarter of 2019, an increase of $1.4 million, compared to $14.7 million for the third quarter of 2019. During the fourth quarter of 2019, the primary components of the increase in noninterest expense were as follows:


•	Increase of $1.2 million in salaries and employees benefits, which consisted of a $603 thousand prior year adjustment, acquired SERP adjustment, year-end employee incentive accrual adjustments, and from increased hiring of associates;


•	Increase of $219 thousand in FDIC insurance due to a credit reported during the third quarter of 2019, and no expense recorded during the fourth quarter of 2019;


•	Increase of $257 thousand in data processing expenses, primarily from core processor credits that were utilized during the third quarter of 2019;


•	Increase of $354 thousand in merger related and restructuring expenses relating to the Progressive Financial Group Inc. acquisition; and


•	Decrease of $644 thousand in other expenses, which consisted of a benefit of $312 thousand relating to a prior year adjustment to franchise taxes from the 2018 income tax return true-up, and a current period benefit of $468 thousand relating to excess tax credits applied to franchise taxes (See Income Tax Expense below).

Income Tax Expense

Income tax expense was $473 thousand for the fourth quarter of 2019, a decrease of $1.5 million, compared to $1.9 million for the third quarter of 2019. During the fourth quarter of 2019, the primary components of the decrease in income tax expense were as follows:


•	Tax benefit of $304 thousand relating to a prior year (2017) amended Federal tax return;


•	Adjustments relating to the true-up of 2018 Federal Tax return; and

•

Tax benefit of $1.1 million income tax benefit associated with a program the State of Tennessee manages for Community Investment loans. The Bank strategically originated loans in this program to reduce its 2019 tax liability. The benefit received from the loans approved under this program was first applied to the current year Tennessee income tax liability, and the excess benefit over the current tax liability was applied directly to the Company’s Tennessee franchise tax liability.

The amount of the benefit received from this opportunity totaled $1.6 million, with a benefit of $1.1 million applied to income tax liability and the excess benefit of $468 thousand applied to franchise tax (as mentioned above in Noninterest Expense).

The overall effective tax rate was 6.6% for the fourth quarter of 2019 compared to 24.6% for the third quarter of 2019.

Balance Sheet Trends

Total assets at December 31, 2019 were $2.45 billion compared with $2.27 billion at December 31, 2018. The year-over-year increase of $174.7 million is primarily from continued loan growth of $122.1 million.

Total liabilities increased to $2.14 billion at December 31, 2019 from $2.00 billion at December 31, 2018. The year-over-year increase of $145.0 million was primarily from the increase of total deposits of $125.3 million and FHLB and other borrowings of $14.2 million.

Shareholders' equity at December 31, 2019 totaled $312.7 million, an increase of $29.7 million, from December 31, 2018. The increase in shareholders' equity was primarily from net income of $26.5 million for the year 2019. Tangible book value per share (Non-GAAP) was $16.82 at December 31, 2019, an increase from $14.64 at December 31, 2018. Tangible common equity (Non-GAAP) as a percentage of tangible assets (Non-GAAP) was 9.93% at December 31, 2019, compared with 9.29% at December 31, 2018.

Conference Call Information

SmartFinancial will issue its earnings release for the fourth quarter of 2019 on Tuesday, January 21, 2020, and will host a conference call on Wednesday, January 22, 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, 1935532. A replay of the conference call will be available through January 22, 2021, by dialing (877) 344-7529 or (412) 317-0088 and entering the confirmation number, 10138335. 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.

About SmartFinancial, Inc.

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

Source

SmartFinancial, Inc.

Investor Contacts

Billy Carroll Ron Gorczynski

President & CEO Executive Vice President, Chief Financial Officer

(865) 868-0613 billy.carroll@smartbank.com (865) 437-5724 ron.gorczynski@smartbank.com

Media Contact

Kelley Fowler

Senior Vice President, Public Relations & Marketing

(865) 868-0611 kelley.fowler@smartbank.com

Non-GAAP Financial 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) tangible book value; 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 of $6.4 million in the second quarter of 2019, 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. Tangible book value excludes intangible assets and goodwill. 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 the Private Securities Litigation Reform Act. 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) risks related to the proposed acquisition of PFG, including the risk that the proposed acquisition does not close when expected or at all because conditions to closing are not satisfied on a timely basis or at all, or the terms of the proposed transaction need to be modified to satisfy such conditions; (8) the risk that the anticipated benefits from the proposed acquisition of PFG may not be realized in the time frame anticipated; (9) changes in management’s plans for the future; (10) prevailing, or changes in, economic or political conditions, particularly in our market areas; (11) credit risk associated with our lending activities; (12) changes in interest rates, loan demand, real estate values, or competition; (13) changes in accounting principles, policies, or guidelines; (14) changes in applicable laws, rules, or regulations; and (15) 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.



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															Twelve Months Ended
	Dec			Sep			Jun			Mar			Dec			Dec			Dec
	2019			2019			2019			2019			2018			2019			2018
Selected Performance Ratios (Annualized):
Return on average assets	1.12		%	1.01		%	1.56		%	0.84		%	1.17		%	1.13		%	0.92		%
Return on average shareholders' equity	8.65		%	7.80		%	12.34		%	6.71		%	9.44		%	8.89		%	7.47		%
Return on average tangible common equity (Non-GAAP)¹	11.55		%	10.52		%	16.78		%	9.26		%	13.09		%	12.04		%	10.09		%
Noninterest income / average assets	0.47		%	0.37		%	1.44		%	0.30		%	0.31		%	0.65		%	0.34		%
Noninterest expense / average assets	2.68		%	2.48		%	2.88		%	2.77		%	2.84		%	2.70		%	3.00		%
Efficiency ratio	67.04		%	63.03		%	57.53		%	68.65		%	67.71		%	63.66		%	70.84		%

Operating Selected Performance Ratios (Annualized):
Net operating return on average assets (Non-GAAP)¹	1.08		%	1.02		%	0.96		%	0.98		%	1.07		%	1.01		%	0.99		%
Net operating return on average shareholders' equity (Non-GAAP)¹	8.34		%	7.87		%	7.58		%	7.81		%	8.65		%	7.91		%	8.05		%
Net operating return on average tangible common equity (Non-GAAP)¹	11.12		%	10.61		%	10.31		%	10.79		%	12.00		%	10.71		%	10.88		%
Operating efficiency ratio (Non-GAAP)¹	64.95		%	62.42		%	65.56		%	64.25		%	61.72		%	64.29		%	66.15		%
Operating noninterest income / average assets (Non-GAAP)	0.35		%	0.37		%	0.34		%	0.33		%	0.32		%	0.35		%	0.36		%
Operating noninterest expense / average assets (Non-GAAP)	2.56		%	2.47		%	2.57		%	2.60		%	2.76		%	2.55		%	2.84		%

Selected Interest Rates and Yields:
Yield on loans	5.36		%	5.48		%	5.53		%	5.62		%	5.81		%	5.49		%	5.72		%
Yield on earning assets, FTE	4.92		%	5.05		%	5.17		%	5.25		%	5.36		%	5.10		%	5.32		%
Cost of interest-bearing deposits	1.29		%	1.37		%	1.42		%	1.32		%	1.21		%	1.35		%	1.04		%
Cost of total deposits	1.06		%	1.13		%	1.18		%	1.10		%	1.00		%	1.12		%	0.86		%
Cost of interest-bearing liabilities	1.39		%	1.47		%	1.54		%	1.45		%	1.33		%	1.46		%	1.10		%
Net interest margin, FTE	3.84		%	3.91		%	3.94		%	4.10		%	4.28		%	3.95		%	4.43		%

Per Common Share:
Net income, basic	$	0.48		$	0.43		$	0.65		$	0.34		$	0.48		$	1.90		$	1.46
Net income, diluted	0.48			0.42			0.65			0.34			0.47			1.89			1.45
Net operating earnings, basic (Non-GAAP)¹	0.46			0.43			0.40			0.40			0.44			1.69			1.57
Net operating earnings, diluted (Non-GAAP)¹	0.46			0.43			0.40			0.39			0.43			1.68			1.56
Book value	22.33			21.93			21.47			20.82			20.31			22.33			20.31
Tangible book value (Non-GAAP)¹	16.82			16.37			15.86			15.18			14.64			16.82			14.64
Common shares outstanding	14,008,233			13,957,973			13,953,209			13,951,590			13,933,504			14,008,233			13,933,504

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
	Dec			Sep			Jun			Mar			Dec
	2019			2019			2019			2019			2018
Composition of Loans:
Commercial real estate
owner occupied	$	429,269		$	422,363		$	415,502		$	416,152		$	372,030
non-owner occupied	476,038			468,099			464,160			472,790			487,997
Commercial real estate, total	905,307			890,462			879,662			888,942			860,027
Commercial & industrial	337,075			341,207			334,258			341,471			308,254
Construction & land development	227,626			219,751			204,731			187,009			187,895
Consumer real estate	423,337			405,531			406,357			410,981			407,254
Consumer and other	9,903			10,796			11,981			12,166			13,809
Total loans	$	1,903,248		$	1,867,747		$	1,836,989		$	1,840,569		$	1,777,239

Asset Quality and Additional Loan Data:
Nonperforming loans	$	3,350		$	3,166		$	2,838		$	2,282		$	3,280
Other real estate owned	1,757			1,561			1,814			2,066			2,495
Total nonperforming assets	$	5,107		$	4,727		$	4,652		$	4,348		$	5,775
Restructured loans not included in nonperforming loans	$	61		$	61		$	62		$	62		$	116
Net charge-offs (recoveries) to average loans (annualized)	0.01		%	0.01		%	—		%	0.08		%	0.04		%
Allowance for loan losses to loans	0.54		%	0.53		%	0.50		%	0.47		%	0.47		%
Nonperforming loans to total loans, gross	0.18		%	0.17		%	0.15		%	0.12		%	0.18		%
Nonperforming assets to total assets	0.21		%	0.20		%	0.19		%	0.18		%	0.25		%
Purchase accounting discount balance	$	15,348		$	16,784		$	18,571		$	19,954		$	21,528
Accretion income on acquired loans	1,375			1,246			1,374			1,717			2,343

Capital Ratios:
Equity to Assets	12.77		%	12.80		%	12.53		%	12.34		%	12.44		%
Tangible common equity to tangible assets (Non-GAAP)³	9.93		%	9.88		%	9.57		%	9.31		%	9.29		%

SmartFinancial, Inc.¹
Tier 1 leverage	10.34		%	10.02		%	9.92		%	9.29		%	9.47		%
Common equity Tier 1	11.61		%	11.54		%	11.21		%	10.61		%	10.81		%
Tier 1 capital	11.61		%	11.54		%	11.21		%	10.61		%	10.81		%
Total capital	14.02		%	13.98		%	13.65		%	13.01		%	13.29		%

SmartBank	Estimated²
Tier 1 leverage	11.41		%	11.22		%	10.92		%	10.96		%	11.17		%
Common equity Tier 1	12.81		%	12.71		%	12.37		%	12.18		%	12.31		%
Tier 1 risk-based capital	12.81		%	12.71		%	12.37		%	12.18		%	12.31		%
Total risk-based capital	13.31		%	13.19		%	12.82		%	12.62		%	12.74		%

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
	Dec			Sep			Jun			Mar			Dec
	2019			2019			2019			2019			2018

Assets:
Cash and cash equivalents	$	183,971		$	170,934		$	199,534		$	132,994		$	115,822
Securities available-for-sale, at fair value	178,348			171,507			174,114			198,273			201,688
Other investments	12,913			12,913			12,905			12,398			11,499
Loans held for sale	5,856			3,068			4,087			2,103			1,979
Loans	1,897,392			1,864,679			1,832,902			1,838,466			1,775,260
Less: Allowance for loan losses	(10,243		)	(9,792		)	(9,097		)	(8,704		)	(8,275		)
Loans, net	1,887,149			1,854,887			1,823,805			1,829,762			1,766,985
Premises and equipment, net	59,433			58,386			56,589			56,583			56,012
Other real estate owned	1,757			1,561			1,814			2,066			2,495
Goodwill and core deposit intangibles, net	77,193			77,534			78,348			78,690			79,034
Bank owned life insurance	24,949			24,796			24,695			24,540			24,381
Other assets	17,554			14,899			15,366			16,572			14,514
Total assets	$	2,449,123		$	2,390,485		$	2,391,257		$	2,353,981		$	2,274,409

Liabilities:
Deposits:
Noninterest-bearing demand	$	364,155		$	365,024		$	357,220		$	329,095		$	319,861
Interest-bearing demand	380,234			351,474			333,705			331,629			311,482
Money market and savings	623,284			634,934			648,132			698,431			641,945
Time deposits	679,541			646,641			673,243			635,175			648,676
Total deposits	2,047,214			1,998,073			2,012,300			1,994,330			1,921,964
Securities sold under agreements to repurchase	6,184			4,368			8,219			7,070			11,756
FHLB & other borrowings	25,439			25,460			15,460			8,605			11,243
Subordinated debt	39,261			39,240			39,219			39,198			39,177
Other liabilities	18,278			17,304			16,448			14,297			7,258
Total liabilities	2,136,376			2,084,445			2,091,646			2,063,500			1,991,398
Shareholders' Equity:
Common stock	14,008			13,958			13,953			13,952			13,933
Additional paid-in capital	232,732			232,573			232,386			232,241			231,852
Retained earnings	65,839			59,806			53,843			44,722			39,991
Accumulated other comprehensive income (loss)	168			(297		)	(571		)	(434		)	(2,765		)
Total shareholders' equity	312,747			306,040			299,611			290,481			283,011
Total liabilities & shareholders' equity	$	2,449,123		$	2,390,485		$	2,391,257		$	2,353,981		$	2,274,409



SmartFinancial, Inc. and Subsidiary
Condensed Consolidated Financial Information - (unaudited)
(dollars in thousands, except share and per share data)
	Three Months Ended												Twelve Months Ended
	Dec		Sep			Jun		Mar		Dec			Dec		Dec
	2019		2019			2019		2019		2018			2019		2018
Interest income:
Loans, including fees	$	25,398	$	25,515		$	25,278	$	24,975	$	25,018		$	101,002	$	86,469
Securities available-for-sale:
Taxable	698		748			871		971		900			3,289		3,512
Tax-exempt	345		338			411		424		347			1,518		587
Federal funds sold and other earning assets	587		743			743		573		506			2,646		1,642
Total interest income	27,028		27,344			27,303		26,943		26,771			108,455		92,210

Interest expense:
Deposits	5,271		5,605			5,788		5,251		4,680			21,915		14,288
Securities sold under agreements to repurchase	5		5			6		8		9			23		45
FHLB advances and other borrowings	65		10			117		103		51			296		630
Subordinated debt	584		584			590		584		584			2,341		603
Total interest expense	5,924		6,204			6,501		5,946		5,324			24,575		15,566
Net interest income	21,104		21,140			20,802		20,997		21,447			83,880		76,644
Provision for loan losses	685		724			393		797		1,329			2,599		2,936
Net interest income after provision for loan losses	20,419		20,416			20,409		20,200		20,118			81,281		73,708

Noninterest income:
Service charges on deposit accounts	773		767			707		654		663			2,902		2,416
Gain on sale of securities, net	—		1			33		—		2			34		1
Mortgage banking	374		518			392		282		251			1,566		1,433
Interchange and debit card transaction fees	163		148			143		175		162			628		573
Merger termination fee	—		—			6,400		—		—			6,400		—
Other	1,530		762			741		587		602			3,785		2,161
Total noninterest income	2,840		2,196			8,416		1,698		1,680			15,315		6,584

Noninterest expense:
Salaries and employee benefits	10,278		9,072			8,984		8,398		7,871			36,635		30,630
Occupancy and equipment	1,749		1,635			1,658		1,640		1,610			6,716		6,303
FDIC insurance (credit)	—		(219		)	180		179		209			140		786
Other real estate and loan related expense	253		335			242		490		738			1,320		2,913
Advertising and marketing	166		263			259		295		246			983		873
Data processing	530		273			577		615		372			1,995		1,906
Professional services	652		573			489		662		707			2,375		2,694
Amortization of intangibles	340		341			342		344		312			1,368		976
Software as service contracts	500		560			568		567		577			2,195		2,054
Merger related and restructuring expenses	427		73			1,796		923		1,322			3,219		3,781
Other	1,157		1,802			1,714		1,466		1,697			6,205		6,041
Total noninterest expense	16,052		14,708			16,809		15,579		15,661			63,151		58,957
Income before income taxes	7,206		7,904			12,016		6,319		6,137			33,445		21,335
Income tax expense	473		1,941			2,895		1,588		(307		)	6,897		3,233
Net income	$	6,733	$	5,963		$	9,121	$	4,731	$	6,444		$	26,548	$	18,102

Earnings Per Common Share:
Basic	$	0.48	$	0.43		$	0.65	$	0.34	$	0.48		$	1.90	$	1.46
Diluted	$	0.48	$	0.42		$	0.65	$	0.34	$	0.47		$	1.89	$	1.45
Weighted average common shares outstanding:
Basic	13,965,877		13,955,859			13,951,643		13,942,016		13,534,806			13,953,497		12,423,618
Diluted	14,066,269		14,053,432			14,046,500		14,018,163		13,616,616			14,046,366		12,517,640



SmartFinancial, Inc. and Subsidiary
Condensed Consolidated Financial Information - (unaudited)
(In thousands)
YIELD ANALYSIS
	Three Months Ended
	December 31, 2019						September 30, 2019						December 31, 2018
	Average				Yield/		Average				Yield/		Average				Yield/
	Balance		Interest¹		Cost¹		Balance		Interest¹		Cost¹		Balance		Interest¹		Cost¹
Assets:
Loans, including fees	$	1,881,501	$	25,398	5.36	%	$	1,846,196	$	25,515	5.48	%	$	1,708,916	$	25,019	5.81	%
Taxable securities	116,278		698		2.38	%	118,955		748		2.49	%	171,133		900		2.09	%
Tax-exempt securities	59,048		461		3.09	%	56,598		448		3.14	%	43,177		440		4.04	%
Federal funds sold and other earning assets	133,681		587		1.74	%	135,444		743		2.18	%	67,036		506		2.99	%
Total interest-earning assets	2,190,508		27,144		4.92	%	2,157,193		27,454		5.05	%	1,990,262		26,865		5.36	%
Noninterest-earning assets	190,083						191,940						193,952
Total assets	$	2,380,591					$	2,349,133					$	2,184,214

Liabilities and Stockholders’ Equity:
Interest-bearing demand deposits	$	351,901	486		0.55	%	$	343,827	511		0.59	%	$	289,207	562		0.77	%
Money market and savings deposits	632,555		1,695		1.06	%	637,290		1,829		1.14	%	624,231		1,696		1.08	%
Time deposits	633,867		3,090		1.93	%	640,679		3,265		2.02	%	616,296		2,422		1.56	%
Total interest-bearing deposits	1,618,323		5,271		1.29	%	1,621,796		5,605		1.37	%	1,529,734		4,680		1.21	%
Securities sold under agreement to repurchase	5,321		5		0.35	%	6,490		5		0.31	%	10,661		9		0.33	%
Federal funds purchased and other borrowings	25,549		65		1.00	%	6,820		10		0.58	%	4,070		51		4.97	%
Subordinated debt	39,248		584		5.90	%	39,226		584		5.91	%	39,178		584		5.91	%
Total interest-bearing liabilities	1,688,441		5,924		1.39	%	1,674,332		6,204		1.47	%	1,583,643		5,324		1.33	%
Noninterest-bearing deposits	363,542						353,315						320,412
Other liabilities	19,836						18,286						9,275
Total liabilities	2,071,819						2,045,933						1,913,330
Stockholders’ equity	308,772						303,200						270,884
Total liabilities and stockholders’ equity	$	2,380,591					$	2,349,133					$	2,184,214

Net interest income, taxable equivalent			$	21,220					$	21,250					$	21,541
Interest rate spread					3.52	%					3.58	%					4.03	%
Tax equivalent net interest margin					3.84	%					3.91	%					4.28	%

Percentage of average interest-earning assets to average interest-bearing liabilities					129.74	%					128.84	%					125.68	%
Percentage of average equity to average assets					12.97	%					12.91	%					12.40	%

¹Taxable equivalent



SmartFinancial, Inc. and Subsidiary
Condensed Consolidated Financial Information - (unaudited)
(In thousands)
YIELD ANALYSIS
	Twelve Months Ended
	December 31, 2019						December 31, 2018
	Average				Yield/		Average				Yield/
	Balance		Interest¹		Cost¹		Balance		Interest¹		Cost¹
Assets:
Loans, including fees	$	1,840,821	$	101,002	5.49	%	$	1,511,724	$	86,479	5.72	%
Taxable securities	129,705		3,289		2.54	%	143,281		3,512		2.46	%
Tax-exempt securities	56,458		1,972		3.49	%	19,734		767		3.90	%
Federal funds sold and other earning assets	110,380		2,646		2.40	%	65,244		1,642		2.52	%
Total interest-earning assets	2,137,364		108,909		5.10	%	1,739,983		92,400		5.32	%
Noninterest-earning assets	201,976						222,734
Total assets	$	2,339,340					$	1,962,717

Liabilities and Stockholders’ Equity:
Interest-bearing demand deposits	$	333,100	1,883		0.57	%	$	242,859	1,290		0.53	%
Money market and savings deposits	651,855		7,827		1.20	%	601,808		5,579		0.93	%
Time deposits	635,451		12,205		1.92	%	536,964		7,419		1.39	%
Total interest-bearing deposits	1,620,406		21,915		1.35	%	1,381,631		14,288		1.04	%
Securities sold under agreement to repurchase	6,750		23		0.34	%	15,046		45		0.30	%
Federal funds purchased and other borrowings	14,776		296		2.00	%	17,806		630		3.55	%
Subordinated debt	39,216		2,341		5.97	%	9,882		603		6.12	%
Total interest-bearing liabilities	1,681,148		24,575		1.46	%	1,424,365		15,566		1.10	%
Noninterest-bearing deposits	343,611						285,729
Other liabilities	15,852						10,172
Total liabilities	2,040,611						1,720,266
Stockholders’ equity	298,729						242,451
Total liabilities and stockholders’ equity	$	2,339,340					$	1,962,717

Net interest income, taxable equivalent			$	84,334					$	76,834
Interest rate spread					3.63	%					4.22	%
Tax equivalent net interest margin					3.95	%					4.43	%

Percentage of average interest-earning assets to average interest-bearing liabilities					127.14	%					122.16	%
Percentage of average equity to average assets					12.77	%					12.35	%

¹Taxable equivalent



SmartFinancial, Inc. and Subsidiary
Condensed Consolidated Financial Information - (unaudited)
(In thousands)
NON-GAAP RECONCILIATIONS
	Three Months Ended															Twelve Months Ended
	Dec			Sep			Jun			Mar			Dec			Dec			Dec
	2019			2019			2019			2019			2018			2019			2018
Operating Earnings:
Net income (GAAP)	$	6,733		$	5,963		$	9,121		$	4,731		$	6,444		$	26,548		$	18,102
Noninterest income:
Securities gains	—			(1		)	(33		)	—			(2		)	(34		)	(1		)
ADECA termination proceeds	(720		)	—			—			—			—			(720		)	—
Merger termination fee	—			—			(6,400		)	—			—			(6,400		)	—
Noninterest expenses:
Salaries - prior year adjustment	603			—			—			—			—			603			—
Merger related and restructuring expenses	427			73			1,796			923			1,322			3,219			3,781
Other - prior year franchise tax true-up	(312		)	—			—			—			—			(312		)	—
Income taxes:
Tax benefit - prior year amended return	(304		)	—			—			—			—			(304		)	—
Tax benefit from director options	—			—			—			—			(1,600		)	—			(1,600		)
Income tax effect of adjustments	60			(19		)	1,119			(145		)	(257		)	1,015			(766		)
Net operating earnings (Non-GAAP)	$	6,487		$	6,016		$	5,603		$	5,509		$	5,907		$	23,615		$	19,516
Net operating earnings per common share (Non-GAAP):
Basic	$	0.46		$	0.43		$	0.40		$	0.40		$	0.44		$	1.69		$	1.57
Diluted	0.46			0.43			0.40			0.39			0.43			1.68			1.56

Operating Noninterest Income:
Noninterest income (GAAP)	$	2,840		$	2,196		$	8,416		$	1,698		$	1,680		$	15,315		$	6,584
Securities (gains) losses	—			(1		)	(33		)	—			(2		)	(34		)	(1		)
ADECA termination proceeds	(720		)	—			—			—			—			(726		)	—
Merger termination fee	—			—			(6,400		)	—			—			(6,400		)	—
Operating noninterest income (Non-GAAP)	$	2,120		$	2,195		$	1,983		$	1,698		$	1,678		$	8,155		$	6,583

Operating Noninterest Expense:
Noninterest expense (GAAP)	$	16,052		$	14,708		$	16,809		$	15,579		$	15,661		$	63,151		$	58,957
Salaries - prior year adjustment	(603		)	—			—			—			—			(603		)	—
Merger related and restructuring expenses	(427		)	(73		)	(1,796		)	(923		)	(1,322		)	(3,219		)	(3,781		)
Other - prior year franchise tax true-up	312			—			—			—			—			312			—
Operating noninterest expense (Non-GAAP)	$	15,334		$	14,635		$	15,013		$	14,656		$	14,339		$	59,641		$	55,176

Non-GAAP Return Ratios:
Net operating return on average assets (Non-GAAP)¹	1.08		%	1.02		%	0.96		%	0.98		%	1.07		%	1.01		%	0.99		%
Return on average tangible common equity (Non-GAAP)²	11.55		%	10.52		%	16.78		%	9.26		%	13.09		%	12.04		%	10.09		%
Net operating return on average shareholder equity (Non-GAAP)³	8.34		%	7.87		%	7.58		%	7.81		%	8.65		%	7.91		%	8.05		%
Net operating return on average tangible common equity (Non-GAAP)⁴	11.12		%	10.61		%	10.31		%	10.79		%	12.00		%	10.71		%	10.88		%

Operating Efficiency Ratio:
Efficiency ratio (GAAP)	67.04		%	63.03		%	57.53		%	68.65		%	67.71		%	63.66		%	70.84		%
Adjustment for taxable equivalent yields	(0.45		)%	(0.37		)%	(0.50		)%	(0.49		)%	(0.45		)%	0.08		%	(0.21		)%
Adjustment for securities gains (losses)	—		%	—		%	0.14		%	—		%	0.01		%	(0.01		)%	—		%
Adjustment for merger related income and costs	(1.64		)%	(0.24		)%	8.39		%	(3.91		)%	(5.55		)%	0.56		%	(4.47		)%
Operating efficiency ratio (Non-GAAP)	64.95		%	62.42		%	65.56		%	64.25		%	61.72		%	64.29		%	66.15		%

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).



SmartFinancial, Inc. and Subsidiary
Condensed Consolidated Financial Information - (unaudited)
(In thousands)
NON-GAAP RECONCILIATIONS
	Three Months Ended										Twelve Months Ended
	Dec		Sep		Jun		Mar		Dec		Dec		Dec
	2019		2019		2019		2019		2018		2019		2018
Tangible Common Equity:
Shareholders' equity (GAAP)	$	312,747	$	306,040	$	299,611	$	290,481	$	283,011	$	312,747	$	283,011
Less goodwill and other intangible assets	77,193		77,534		78,348		78,690		79,034		77,193		79,034
Tangible common equity (Non-GAAP)	$	235,555	$	228,506	$	221,263	$	211,791	$	203,977	$	235,555	$	203,977

Average Tangible Common Equity:
Average shareholders' equity (GAAP)	$	308,772	$	303,200	$	296,570	$	286,076	$	270,884	$	298,729	$	242,451
Less average goodwill and other intangible assets	77,400		78,222		78,564		78,913		75,547		78,270		63,075
Average tangible common equity (Non-GAAP)	$	231,372	$	224,978	$	218,006	$	207,163	$	195,337	$	220,459	$	179,376

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