8-K
SMARTFINANCIAL INC. (SMBK)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of earliest event reported: July 21, 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<br>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 July 21, 2020, SmartFinancial, Inc. (SmartFinancial") issued a press release (the "Press Release") reporting earnings results for its second quarter ending June 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 that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
| Item 7.01 | Regulation FD Disclosure. |
|---|
SmartFinancial is filing an investor slide presentation that it intends to review in conjunction with its earnings release conference call on July 22, 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 the 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 second quarter 2020 financial results dated July 21, 2020 |
| 99.2 | | Second 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: July 21, 2020 | |
| /s/ William Y. Carroll, Jr. | |
| William Y. Carroll, Jr. | |
| President & Chief Executive Officer |
Exhibit 99.1
2Q 2020
SmartFinancial Announces Results for the Second Quarter 2020
KNOXVILLE, TN – July 21, 2020 - SmartFinancial, Inc. ("SmartFinancial" or the "Company"; NASDAQ: SMBK), today announced net income of $6.2 million, or $0.41 per diluted common share, for the second quarter of 2020, compared to net income of $2.7 million, or $0.19 per diluted common share for the first quarter of 2020. Operating earnings (Non-GAAP), which excludes securities gains, merger related and restructuring expenses and non-operating items, totaled $7.3 million, or $0.48 per diluted common share, in the second quarter of 2020, compared to $4.3 million, or $0.30 per diluted common share, in the first quarter of 2020.
Highlights for the Second Quarter of 2020
| ● | Net income of $6.2 million and operating earnings of $7.3 million (Non-GAAP) |
|---|---|
| ● | Diluted earnings per share increased 115.8% for the quarter and diluted operating earnings per share (Non-GAAP) increased 60.0% for the quarter |
| --- | --- |
| ● | Total assets grew to over $3 billion |
| --- | --- |
| ● | Completed the integration of Progressive Financial Group (“PFG”) |
| --- | --- |
| ● | Tangible book value (Non-GAAP) per share of $16.90, a 6.6% year-over-year increase |
| --- | --- |
| ● | Originated approximately 2,800 Paycheck Protection Program (“PPP”) loans totaling $292.8 million |
| --- | --- |
Billy Carroll, President & CEO, stated: "We are extremely pleased to report another very solid quarter. While finalizing our Progressive Financial Group integration and conversion, we reported outstanding increases in revenue, in particular our non-interest income performance. Our team also continues to focus on our tremendous asset quality and have worked with many new and existing clients to secure PPP funding, creating a number of great opportunities for our bank. The outlook for our company remains very strong."
SmartFinancial's Chairman, Miller Welborn, concluded: “We have closed another great quarter for our company. Our team has continued to successfully execute our Strategic Plan. We have strengthened our Balance Sheet, served our clients and our shareholders well and continued to increase the book value of our stock.”
Net Interest Income and Net Interest Margin
Net interest income increased $3.1 million to $25.7 million for the second quarter of 2020, compared to $22.6 million for the first quarter of 2020, primarily attributable to the full quarter effects of the Company’s March 1, 2020 acquisition of PFG (the “PFG Acquisition”) and participation in the PPP. Average earning assets increased $532.0 million, which reflects a $376.1 million increase in average loans, a $21.1 million increase in securities and a $134.8 million increase in other earning assets. Average interest-bearing liabilities increased $353.8 million, driven by an increase of $168.5 million in average interest-bearing deposits and an increase of $185.2 million in borrowings.
The tax equivalent net interest margin was 3.63% for the second quarter of 2020, compared to 3.90% for the first quarter of 2020. The tax equivalent net interest margin was impacted by a 61 basis point decline in the average yield on interest-earning assets offset by a 43 basis point decline in the rate on interest-bearing liabilities over the last quarter. The tax equivalent net interest margin, less discount accretion was 3.50% for the second quarter of 2020, a decrease from 3.58% for the first quarter of 2020.
The tax equivalent average yield on interest-earning assets was 4.22% for the second quarter of 2020, a decrease from 4.83% for the first quarter of 2020. The yield on average loans was 4.87% for the second quarter of 2020, compared to 5.35% for the first quarter of 2020. Offsetting the effects of the Federal Reserve rate cuts included in yield on average loans for the second quarter of 2020 was $1.9 million of PPP fee accretion and $888 thousand of discount accretion on acquired loans, compared to $1.8 million of discount accretion recognized in the first quarter of 2020. Additionally, increases in liquidity positions negatively impacted the net interest margin with lower yields earned on the excess cash position.
The yield on interest-bearing liabilities decreased to 0.77% for the second quarter of 2020 from 1.20% for the first quarter of 2020. The cost of average interest-bearing deposits was 0.71% for the second quarter of 2020 compared to 1.10% for the first quarter of 2020, a decrease of 39 basis points. This decrease was a result of the Company’s efforts deployed to reduce deposit rates in reaction to the Federal Reserve rate cuts.
Provision for Loan Loss and Credit Quality
Provision for loan losses was $2.9 million in the second quarter of 2020, compared to $3.2 million in the first quarter of 2020. At June 30, 2020, the allowance for loan losses was $16.3 million. The allowance for loan losses to total loans was 0.67% as of June 30, 2020, compared to 0.63% as of March 31, 2020. For the Company’s originated loans, the allowance for loan losses to originated loans, less PPP loans, was 0.89% as of June 30, 2020, compared to 0.77% as of March 31, 2020. The remaining discounts on the acquired loan portfolio totaled $16.2 million, or 3.40% of acquired loans as of June 30, 2020. The elevated provision for loan losses was due to the continued economic conditions facing the U.S. economy related to the challenges being faced with the worldwide COVID-19 pandemic.
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 0.16% as of June 30, 2020, an increase of two basis points from the 0.14% reported in the first 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 0.28% as of June 30, 2020, as compared to 0.31% as of March 31, 2020.
Noninterest Income
Noninterest income increased $693 thousand to $3.5 million for the second quarter of 2020 compared to $2.8 million for the first quarter of 2020. During the second quarter of 2020, the primary components of the changes in noninterest income were as follows:
| ● | Increase in mortgage banking income of $347 thousand, as volume increased during the second quarter; |
|---|---|
| ● | Increase in insurance commissions income of $204 thousand, due to a full quarter of revenue from the PFG Acquisition; |
| --- | --- |
| ● | Increase in interchange and debit card transaction fees of $232 thousand, related to a full quarter of activity from the PFG Acquisition; and |
| --- | --- |
| ● | Decrease in investment services income of $74 thousand. |
| --- | --- |
Noninterest Expense
Noninterest expense was $18.8 million for the second and first quarters of 2020. Even though noninterest expense remained constant between the second and first quarters of 2020, the primary changes within noninterest expense were as follows:
| ● | Salaries and employee benefits increased $351 thousand. The increase is attributable to the full quarter of salaries and benefits from the PFG Acquisition, annual salary increases, and other employee benefit accruals. These increases were offset by deferred salary cost related to the origination of PPP loans; and |
|---|---|
| ● | Decrease of $619 thousand in merger related and restructuring expenses relating to the PFG Acquisition. |
| --- | --- |
2
Income Tax Expense
Income tax expense was $1.4 million for the second quarter of 2020, an increase of $763 thousand, compared to $664 thousand for the first quarter of 2020.
For the second quarter of 2020, the effective tax rate was 18.8% compared to 19.6% for the first quarter of 2020.
Balance Sheet Trends
Total assets at June 30, 2020, were $3.27 billion compared with $2.45 billion at December 31, 2019. The increase of $816.9 million is primarily attributable to assets acquired from the PFG Acquisition of approximately $307.2 million, increase in cash and cash equivalents of $215.5 million and the origination of $292.8 million of PPP loans.
Total liabilities increased to $2.92 billion at June 30, 2020 from $2.14 billion at December 31, 2019. The increase of $786.1 million was primarily from deposit growth of $220.5 million, acquired deposits from the PFG Acquisition in the amount of $272.0 million, and an increase in borrowings of $287.2 million.
Shareholders' equity at June 30, 2020, totaled $343.5 million, an increase of $30.7 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 $8.9 million for the six months ended June 30, 2020 and a net change in accumulated other comprehensive income of $424 thousand, which was offset by the repurchase of the Company's common stock of $2.1 million and $1.5 million of dividends paid. Tangible book value per share (Non-GAAP) was $16.90 at June 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 8.09% at June 30, 2020, compared with 9.93% at December 31, 2019.
Conference Call Information
SmartFinancial issued this earnings release for the second quarter of 2020 on Tuesday, July 21, 2020, and will host a conference call on Wednesday, July 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, 5925756. A replay of the conference call will be available through July 22, 2021, by dialing (877) 344-7529 or (412) 317-0088 and entering the confirmation number, 10146072. 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 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 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 | |
| | |
3
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 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 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.
4
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; (6) 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.
5
SmartFinancial, Inc. and Subsidiary
Condensed Consolidated Financial Information - (unaudited)
(dollars in thousands except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | As of and for The | | | As of and for The | | |||||||||||||||||
| | Three Months Ended | Six Months Ended | | |||||||||||||||||||
| | Jun | Mar | Dec | Sep | Jun | | Jun | Jun | | |||||||||||||
| | 2020 | | 2020 | | 2019 | | 2019 | | 2019 | | | 2020 | | 2019 | | |||||||
| Selected Performance Ratios (Annualized): | | | | | | | | | | | | |||||||||||
| Return on average assets | | 0.79 | % | | 0.43 | % | | 1.12 | % | | 1.01 | % | | 1.56 | % | | | 0.63 | % | | 1.21 | % |
| Return on average shareholders' equity | | 7.31 | % | | 3.33 | % | | 8.65 | % | | 7.80 | % | | 12.34 | % | | | 5.41 | % | | 9.59 | % |
| Return on average tangible common equity¹ | | 9.80 | % | | 4.41 | % | | 11.55 | % | | 10.52 | % | | 16.78 | % | | | 7.23 | % | | 13.14 | % |
| Noninterest income / average assets | | 0.45 | % | | 0.44 | % | | 0.47 | % | | 0.37 | % | | 1.44 | % | | | 0.45 | % | | 0.88 | % |
| Noninterest expense / average assets | | 2.41 | % | | 2.96 | % | | 2.68 | % | | 2.48 | % | | 2.88 | % | | | 2.66 | % | | 2.82 | % |
| Efficiency ratio | | 64.28 | % | | 74.02 | % | | 67.04 | % | | 63.03 | % | | 57.53 | % | | | 68.81 | % | | 62.39 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Operating Selected Performance Ratios (Annualized): | | | | | | | | | | | | | | | | |||||||
| Operating return on average assets^1^ | | 0.93 | % | | 0.67 | % | | 1.08 | % | | 1.02 | % | | 0.96 | % | | | 0.82 | % | | 0.97 | % |
| Operating PTPP return on average assets^1^ | | 1.53 | % | | 1.37 | % | | 1.31 | % | | 1.47 | % | | 1.33 | % | | | 1.46 | % | | 1.38 | % |
| Operating return on average shareholders' equity^1^ | | 8.58 | % | | 5.22 | % | | 8.34 | % | | 7.87 | % | | 7.58 | % | | | 7.00 | % | | 7.69 | % |
| Operating return on average tangible common equity^1^ | | 11.51 | % | | 6.90 | % | | 11.12 | % | | 10.61 | % | | 10.31 | % | | | 9.36 | % | | 10.54 | % |
| Operating efficiency ratio^1^ | | 58.95 | % | | 65.46 | % | | 64.95 | % | | 62.42 | % | | 65.56 | % | | | 61.98 | % | | 64.91 | % |
| Operating noninterest income / average assets^1^ | | 0.45 | % | | 0.44 | % | | 0.35 | % | | 0.37 | % | | 0.34 | % | | | 0.45 | % | | 0.32 | % |
| Operating noninterest expense / average assets^1^ | | 2.23 | % | | 2.63 | % | | 2.56 | % | | 2.47 | % | | 2.57 | % | | | 2.41 | % | | 2.59 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Selected Interest Rates and Yields: | | | | | | | | | | | | | | | | |||||||
| Yield on loans | | 4.87 | % | | 5.35 | % | | 5.36 | % | | 5.48 | % | | 5.53 | % | | | 5.09 | % | | 5.58 | % |
| Yield on earning assets, FTE | | 4.22 | % | | 4.83 | % | | 4.92 | % | | 5.05 | % | | 5.17 | % | | | 4.50 | % | | 5.23 | % |
| Cost of interest-bearing deposits | | 0.71 | % | | 1.10 | % | | 1.29 | % | | 1.37 | % | | 1.42 | % | | | 0.90 | % | | 1.37 | % |
| Cost of total deposits | | 0.54 | % | | 0.91 | % | | 1.06 | % | | 1.13 | % | | 1.18 | % | | | 0.71 | % | | 1.14 | % |
| Cost of interest-bearing liabilities | | 0.77 | % | | 1.20 | % | | 1.39 | % | | 1.47 | % | | 1.54 | % | | | 0.97 | % | | 1.49 | % |
| Net interest margin, FTE | | 3.63 | % | | 3.90 | % | | 3.84 | % | | 3.91 | % | | 3.94 | % | | | 3.75 | % | | 4.04 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Per Common Share: | | | | | | | | | | | | |||||||||||
| Net income, basic | $ | 0.41 | | $ | 0.19 | | $ | 0.48 | | $ | 0.43 | | $ | 0.65 | | | $ | 0.60 | | $ | 0.99 | |
| Net income, diluted | 0.41 | | 0.19 | | 0.48 | | 0.42 | | 0.65 | | | 0.60 | | 0.99 | | |||||||
| Operating earnings, basic¹ | 0.48 | | 0.30 | | 0.46 | | 0.43 | | 0.40 | | | 0.78 | | 0.80 | | |||||||
| Operating earnings, diluted¹ | 0.48 | | 0.30 | | 0.46 | | 0.43 | | 0.40 | | | 0.78 | | 0.79 | | |||||||
| Book value | 22.57 | | 22.09 | | 22.33 | | 21.93 | | 21.47 | | | 22.57 | | 21.47 | | |||||||
| Tangible book value¹ | 16.90 | | 16.40 | | 16.82 | | 16.37 | | 15.86 | | | 16.90 | | 15.86 | | |||||||
| Common shares outstanding | 15,216,932 | | 15,221,990 | | 14,008,233 | | 13,957,973 | | 13,953,209 | | | 15,216,932 | | 13,953,209 | |
¹See reconciliation of Non-GAAP measures
6
SmartFinancial, Inc. and Subsidiary
Condensed Consolidated Financial Information - (unaudited)
(dollars in thousands)
| | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | As of and for The Three Months Ended | ||||||||||||||
| | Jun | Mar | Dec | Sep | Jun | |||||||||||
| | | 2020 | | 2020 | | 2019 | | 2019 | | 2019 | ||||||
| Composition of Loans: | | | | | | | | | | | ||||||
| Commercial real estate | | | | | | | | | | | ||||||
| owner occupied | | $ | 464,073 | | $ | 473,398 | | $ | 429,269 | | $ | 422,363 | | $ | 415,502 | |
| non-owner occupied | | 552,958 | | 535,637 | | 476,038 | | 468,099 | | 464,160 | | |||||
| Commercial real estate, total | | 1,017,031 | | 1,009,035 | | 905,307 | | 890,462 | | 879,662 | | |||||
| Commercial & industrial | | 637,450 | | 377,173 | | 337,075 | | 341,207 | | 334,258 | | |||||
| Construction & land development | | 279,216 | | 253,445 | | 227,626 | | 219,751 | | 204,731 | | |||||
| Consumer real estate | | 459,861 | | 482,728 | | 417,481 | | 402,463 | | 402,270 | | |||||
| Consumer and other | | 14,726 | | 16,866 | | 9,903 | | 10,796 | | 11,981 | | |||||
| Total loans | | $ | 2,408,284 | | $ | 2,139,247 | | $ | 1,897,392 | | $ | 1,864,679 | | $ | 1,832,902 | |
| | | | | | | | | | | | | | | | | |
| Asset Quality and Additional Loan Data: | | | | | | | | | | | ||||||
| Nonperforming loans | | $ | 3,776 | | $ | 3,069 | | $ | 3,350 | | $ | 3,166 | | $ | 2,838 | |
| Other real estate owned | | 5,524 | | 5,894 | | 1,757 | | 1,561 | | 1,814 | | |||||
| Total nonperforming assets | | $ | 9,300 | | $ | 8,963 | | $ | 5,107 | | $ | 4,727 | | $ | 4,652 | |
| Restructured loans not included in nonperforming loans | | $ | 9 | | $ | 9 | | $ | 61 | | $ | 61 | | $ | 62 | |
| Net charge-offs to average loans (annualized) | | — | % | — | % | 0.01 | % | 0.01 | % | — | % | |||||
| Allowance for loan losses to loans | | 0.67 | % | 0.63 | % | 0.54 | % | 0.53 | % | 0.50 | % | |||||
| Nonperforming loans to total loans, gross | | 0.16 | % | 0.14 | % | 0.18 | % | 0.17 | % | 0.15 | % | |||||
| Nonperforming assets to total assets | | 0.28 | % | 0.31 | % | 0.21 | % | 0.20 | % | 0.19 | % | |||||
| Acquired loan fair value discount balance | | $ | 16,187 | | $ | 17,237 | | $ | 15,348 | | $ | 16,784 | | $ | 18,571 | |
| Accretion income on acquired loans | | 888 | | 1,841 | | 1,375 | | 1,246 | | 1,374 | | |||||
| PPP net fees deferred balance | | | 8,582 | | | — | | | — | | | — | | | — | |
| PPP net fees recognized | | | 1,909 | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | |
| Capital Ratios: | | | | | | | | | | | ||||||
| Equity to Assets | | 10.52 | % | 11.70 | % | 12.77 | % | 12.80 | % | 12.53 | % | |||||
| Tangible common equity to tangible assets (Non-GAAP)^1^ | | 8.09 | % | 8.96 | % | 9.93 | % | 9.88 | % | 9.57 | % | |||||
| | | | | | | | | | | | | | | | | |
| SmartFinancial, Inc.^2^ | | | | | | | | | | | ||||||
| Tier 1 leverage | | 8.83 | % | 10.28 | % | 10.34 | % | 10.02 | % | 9.92 | % | |||||
| Common equity Tier 1 | | 10.92 | % | 10.87 | % | 11.61 | % | 11.54 | % | 11.21 | % | |||||
| Tier 1 capital | | 10.92 | % | 10.87 | % | 11.61 | % | 11.54 | % | 11.21 | % | |||||
| Total capital | | 13.25 | % | 13.13 | % | 14.02 | % | 13.98 | % | 13.65 | % | |||||
| | | | | | | | | | | | | | | | | |
| SmartBank | | **** | Estimated^3^ | | | | | | | | | | ||||
| Tier 1 leverage | | 9.82 | % | 11.42 | % | 11.41 | % | 11.22 | % | 10.92 | % | |||||
| Common equity Tier 1 | | 12.14 | % | 12.05 | % | 12.81 | % | 12.71 | % | 12.37 | % | |||||
| Tier 1 risk-based capital | | 12.14 | % | 12.05 | % | 12.81 | % | 12.71 | % | 12.37 | % | |||||
| Total risk-based capital | | 12.82 | % | 12.62 | % | 13.31 | % | 13.19 | % | 12.82 | % |
^1^Total common equity less intangibles divided by total assets less intangibles. See reconciliation of Non-GAAP measures.
^2^All periods presented are estimated.
^3^ Current period capital ratios are estimated as of the date of this earnings release.
7
SmartFinancial, Inc. and Subsidiary
Condensed Consolidated Financial Information - (unaudited)
(dollars in thousands)
| | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Ending Balances | |||||||||||||
| | | Jun | Mar | Dec | Sep | Jun | |||||||||
| | | 2020 | | 2020 | | 2019 | | 2019 | | 2019 | |||||
| Assets: | | | | | | | | ||||||||
| Cash and cash equivalents | | $ | 399,467 | | $ | 309,089 | | $ | 183,971 | | $ | 170,934 | | $ | 199,534 |
| Securities available-for-sale, at fair value | | 219,631 | | 201,002 | | 178,348 | | 171,507 | | 174,114 | |||||
| Other investments | | 14,829 | | 14,113 | | 12,913 | | 12,913 | | 12,905 | |||||
| Loans held for sale | | 6,330 | | 6,045 | | 5,856 | | 3,068 | | 4,087 | |||||
| Loans | | 2,408,284 | | 2,139,247 | | 1,897,392 | | 1,864,679 | | 1,832,902 | |||||
| Less: Allowance for loan losses | | (16,254) | | (13,431) | | (10,243) | | (9,792) | | (9,097) | |||||
| Loans, net | | 2,392,030 | | 2,125,816 | | 1,887,149 | | 1,854,887 | | 1,823,805 | |||||
| Premises and equipment, net | | 73,868 | | 73,801 | | 59,433 | | 58,386 | | 56,589 | |||||
| Other real estate owned | | 5,524 | | 5,894 | | 1,757 | | 1,561 | | 1,814 | |||||
| Goodwill and core deposit intangibles, net | | 86,327 | | 86,503 | | 77,193 | | 77,534 | | 78,348 | |||||
| Bank owned life insurance | | 30,853 | | 30,671 | | 24,949 | | 24,796 | | 24,695 | |||||
| Other assets | | 37,126 | | 20,781 | | 17,554 | | 14,899 | | 15,366 | |||||
| Total assets | | $ | 3,265,985 | | $ | 2,873,715 | | $ | 2,449,123 | | $ | 2,390,485 | | $ | 2,391,257 |
| Liabilities: | | | | | | ||||||||||
| Deposits: | | | | | | ||||||||||
| Noninterest-bearing demand | | $ | 645,650 | | $ | 431,781 | | $ | 364,155 | | $ | 365,024 | | $ | 357,220 |
| Interest-bearing demand | | 479,212 | | 444,141 | | 380,234 | | 351,474 | | 333,705 | |||||
| Money market and savings | | 762,246 | | 730,392 | | 623,284 | | 634,934 | | 648,132 | |||||
| Time deposits | | 652,581 | | 735,616 | | 679,541 | | 646,641 | | 673,243 | |||||
| Total deposits | | 2,539,689 | | 2,341,930 | | 2,047,214 | | 1,998,073 | | 2,012,300 | |||||
| Borrowings | | 318,855 | | 131,603 | | 31,623 | | 29,828 | | 23,679 | |||||
| Subordinated debt | | 39,304 | | 39,283 | | 39,261 | | 39,240 | | 39,219 | |||||
| Other liabilities | | 24,649 | | 24,699 | | 18,278 | | 17,304 | | 16,448 | |||||
| Total liabilities | | 2,922,497 | | 2,537,515 | | 2,136,376 | | 2,084,445 | | 2,091,646 | |||||
| Shareholders' Equity: | | | | | | ||||||||||
| Common stock | | 15,217 | | 15,222 | | 14,008 | | 13,958 | | 13,953 | |||||
| Additional paid-in capital | | 254,396 | | 254,356 | | 232,732 | | 232,573 | | 232,386 | |||||
| Retained earnings | | 73,283 | | 67,869 | | 65,839 | | 59,806 | | 53,843 | |||||
| Accumulated other comprehensive income (loss) | | 592 | | (1,247) | | 168 | | (297) | | (571) | |||||
| Total shareholders' equity | | 343,488 | | 336,200 | | 312,747 | | 306,040 | | 299,611 | |||||
| Total liabilities & shareholders' equity | | $ | 3,265,985 | | $ | 2,873,715 | | $ | 2,449,123 | | $ | 2,390,485 | | $ | 2,391,257 |
8
SmartFinancial, Inc. and Subsidiary
Condensed Consolidated Financial Information - (unaudited)
(dollars in thousands, except share and per share data)
| | | | | | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Three Months Ended | Six Months Ended | ||||||||||||||||||
| | Jun | Mar | Dec | Sep | Jun | Jun | Jun | |||||||||||||
| | 2020 | | 2020 | | 2019 | | 2019 | | 2019 | | 2020 | | 2019 | |||||||
| Interest income: | | | | | | | | | | | | |||||||||
| Loans, including fees | $ | 28,663 | | $ | 26,434 | | $ | 25,398 | | $ | 25,515 | | $ | 25,278 | | $ | 55,097 | | $ | 50,253 |
| Securities available-for-sale: | | | | | | | ||||||||||||||
| Taxable | 589 | | 679 | | 698 | | 748 | | 871 | | 1,268 | | 1,842 | |||||||
| Tax-exempt | 416 | | 283 | | 345 | | 338 | | 411 | | 699 | | 836 | |||||||
| Federal funds sold and other earning assets | 277 | | 602 | | 587 | | 743 | | 743 | | 879 | | 1,315 | |||||||
| Total interest income | 29,945 | | 27,998 | | 27,028 | | 27,344 | | 27,303 | | 57,943 | | 54,246 | |||||||
| Interest expense: | | | | | | | ||||||||||||||
| Deposits | 3,366 | | 4,754 | | 5,271 | | 5,605 | | 5,788 | | 8,120 | | 11,039 | |||||||
| Borrowings | 249 | | 89 | | 70 | | 15 | | 123 | | 339 | | 235 | |||||||
| Subordinated debt | 584 | | 584 | | 584 | | 584 | | 590 | | 1,167 | | 1,173 | |||||||
| Total interest expense | 4,199 | | 5,427 | | 5,924 | | 6,204 | | 6,501 | | 9,626 | | 12,447 | |||||||
| Net interest income | 25,746 | | 22,571 | | 21,104 | | 21,140 | | 20,802 | | 48,317 | | 41,799 | |||||||
| Provision for loan losses | 2,850 | | 3,200 | | 685 | | 724 | | 393 | | 6,049 | | 1,190 | |||||||
| Net interest income after provision for loan losses | 22,896 | | 19,371 | | 20,419 | | 20,416 | | 20,409 | | 42,268 | | 40,609 | |||||||
| Noninterest income: | | | | | | | ||||||||||||||
| Service charges on deposit accounts | 709 | | 770 | | 773 | | 767 | | 707 | | 1,479 | | 1,361 | |||||||
| Gain on sale of securities, net | 16 | | — | | — | | 1 | | 33 | | 16 | | 33 | |||||||
| Mortgage banking | 931 | | 584 | | 374 | | 518 | | 392 | | 1,515 | | 674 | |||||||
| Investment services | 363 | | 437 | | 261 | | 260 | | 255 | | 801 | | 424 | |||||||
| Insurance commissions | 473 | | 269 | | — | | — | | — | | 742 | | — | |||||||
| Interchange and debit card transaction fees | 508 | | 276 | | 163 | | 148 | | 143 | | 784 | | 318 | |||||||
| Merger termination fee | — | | — | | — | | — | | 6,400 | | — | | 6,400 | |||||||
| Other | 511 | | 482 | | 1,269 | | 502 | | 486 | | 993 | | 904 | |||||||
| Total noninterest income | 3,511 | | 2,818 | | 2,840 | | 2,196 | | 8,416 | | 6,330 | | 10,114 | |||||||
| Noninterest expense: | | | | | | | ||||||||||||||
| Salaries and employee benefits | 10,357 | | 10,006 | | 10,278 | | 9,072 | | 8,984 | | 20,363 | | 17,382 | |||||||
| Occupancy and equipment | 1,996 | | 1,911 | | 1,749 | | 1,635 | | 1,658 | | 3,906 | | 3,298 | |||||||
| FDIC insurance | 180 | | 180 | | — | | (219) | | 180 | | 360 | | 359 | |||||||
| Other real estate and loan related expense | 346 | | 545 | | 253 | | 335 | | 242 | | 892 | | 732 | |||||||
| Advertising and marketing | 202 | | 198 | | 166 | | 263 | | 259 | | 400 | | 554 | |||||||
| Data processing | 594 | | 538 | | 530 | | 273 | | 577 | | 1,132 | | 1,192 | |||||||
| Professional services | 868 | | 711 | | 652 | | 573 | | 489 | | 1,578 | | 1,151 | |||||||
| Amortization of intangibles | 405 | | 362 | | 340 | | 341 | | 342 | | 767 | | 686 | |||||||
| Software as service contracts | 561 | | 470 | | 500 | | 560 | | 568 | | 1,031 | | 1,136 | |||||||
| Merger related and restructuring expenses | 1,477 | | 2,096 | | 427 | | 73 | | 1,796 | | 3,573 | | 2,719 | |||||||
| Other | 1,820 | | 1,776 | | 1,157 | | 1,802 | | 1,714 | | 3,598 | | 3,179 | |||||||
| Total noninterest expense | 18,806 | | 18,793 | | 16,052 | | 14,708 | | 16,809 | | 37,600 | | 32,388 | |||||||
| Income before income taxes | 7,601 | | 3,396 | | 7,206 | | 7,904 | | 12,016 | | 10,998 | | 18,335 | |||||||
| Income tax expense | 1,427 | | 664 | | 473 | | 1,941 | | 2,895 | | 2,091 | | 4,483 | |||||||
| Net income | $ | 6,174 | | $ | 2,732 | | $ | 6,733 | | $ | 5,963 | | $ | 9,121 | | $ | 8,907 | | $ | 13,852 |
| Earnings per common share: | | | | | | | ||||||||||||||
| Basic | $ | 0.41 | | $ | 0.19 | | $ | 0.48 | | $ | 0.43 | | $ | 0.65 | | $ | 0.60 | | $ | 0.99 |
| Diluted | $ | 0.41 | | $ | 0.19 | | $ | 0.48 | | $ | 0.42 | | $ | 0.65 | | $ | 0.60 | | $ | 0.99 |
| Weighted average common shares outstanding: | | | | | | | ||||||||||||||
| Basic | 15,152,768 | | 14,395,103 | | 13,965,877 | | 13,955,859 | | 13,951,643 | | 14,773,935 | | 13,946,856 | |||||||
| Diluted | 15,202,335 | | 14,479,679 | | 14,066,269 | | 14,053,432 | | 14,046,500 | | 14,842,486 | | 14,036,790 |
9
SmartFinancial, Inc. and Subsidiary
Condensed Consolidated Financial Information - (unaudited)
(dollars in thousands)
YIELD ANALYSIS
| | | | | | | | | | | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Three Months Ended | |||||||||||||||||||||||
| | | June 30, 2020 | | March 31, 2020 | | June 30, 2019 | |||||||||||||||||||
| | Average | | | Yield/ | Average | | | Yield/ | Average | | Yield/ | ||||||||||||||
| | | Balance | | Interest^1^ | | Cost^1^ | | Balance | | Interest^1^ | | Cost^1^ | | Balance | | Interest^1^ | | Cost^1^ | |||||||
| Assets: | | | | | | | | ||||||||||||||||||
| Loans, including fees^2^ | | $ | 2,359,101 | | $ | 28,590 | 4.87 | % | $ | 1,982,997 | | $ | 26,389 | 5.35 | % | $ | 1,828,884 | | $ | 25,233 | 5.53 | % | |||
| Loans held for sale | | | 6,868 | | | 73 | | 4.28 | % | | 4,294 | | | 45 | | 4.24 | % | | 3,755 | | | 45 | | 4.81 | % |
| Taxable securities | | 122,135 | | 589 | 1.94 | % | 116,837 | | 679 | 2.34 | % | 136,859 | | 871 | 2.55 | % | |||||||||
| Tax-exempt securities | | 86,227 | | 570 | 2.66 | % | 70,397 | | 400 | 2.28 | % | 56,475 | | 527 | 3.75 | % | |||||||||
| Federal funds sold and other earning assets | | 297,696 | | 277 | 0.37 | % | 165,512 | | 602 | 1.46 | % | 102,253 | | 743 | 2.91 | % | |||||||||
| Total interest-earning assets | | 2,872,027 | | 30,099 | 4.22 | % | 2,340,037 | | 28,115 | 4.83 | % | 2,128,226 | | 27,419 | 5.17 | % | |||||||||
| Noninterest-earning assets | | 260,089 | | | | | 216,498 | | | 215,010 | | | |||||||||||||
| Total assets | | $ | 3,132,116 | | | | | | | $ | 2,556,535 | | | $ | 2,343,236 | | | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Liabilities and Stockholders’ Equity: | | | | | | | | | |||||||||||||||||
| Interest-bearing demand deposits | | $ | 453,795 | | 148 | | 0.13 | % | $ | 389,500 | | 434 | 0.45 | % | $ | 329,556 | | 464 | 0.57 | % | |||||
| Money market and savings deposits | | 748,673 | | 614 | | 0.33 | % | 664,983 | | 1,389 | 0.84 | % | 673,502 | | 2,272 | 1.35 | % | ||||||||
| Time deposits | | 701,390 | | 2,604 | | 1.49 | % | 680,830 | | 2,931 | 1.73 | % | 629,480 | | 3,052 | 1.94 | % | ||||||||
| Total interest-bearing deposits | | 1,903,858 | | 3,366 | | 0.71 | % | 1,735,313 | | 4,754 | 1.10 | % | 1,632,538 | | 5,788 | 1.42 | % | ||||||||
| Borrowings^3^ | | 237,143 | | 249 | | 0.42 | % | 51,921 | | 89 | 0.69 | % | 23,685 | | 123 | 2.08 | % | ||||||||
| Subordinated debt | | 39,290 | | 584 | | 5.98 | % | 39,269 | | 584 | 5.98 | % | 39,205 | | 590 | 6.03 | % | ||||||||
| Total interest-bearing liabilities | | 2,180,291 | | 4,199 | | 0.77 | % | 1,826,503 | | 5,427 | 1.20 | % | 1,695,428 | | 6,501 | 1.54 | % | ||||||||
| Noninterest-bearing deposits | | 587,322 | | | | | | 373,125 | | | 336,871 | | | ||||||||||||
| Other liabilities | | 24,642 | | | | | | 27,215 | | | 14,367 | | | ||||||||||||
| Total liabilities | | 2,792,255 | | | | | | 2,226,843 | | | 2,046,666 | | | ||||||||||||
| Shareholders' equity | | 339,861 | | | | | | 329,692 | | | 296,570 | | | ||||||||||||
| Total liabilities and shareholders' equity | | $ | 3,132,116 | | | | | | | $ | 2,556,535 | | | $ | 2,343,236 | | | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net interest income, taxable equivalent | | | | | $ | 25,900 | | | | | $ | 22,688 | | | $ | 20,918 | | ||||||||
| Interest rate spread | | | | | | 3.44 | % | | 3.63 | % | | 3.63 | % | ||||||||||||
| Tax equivalent net interest margin | | | | | | 3.63 | % | | 3.90 | % | | 3.94 | % | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Percentage of average interest-earning assets to average interest-bearing liabilities | | | | | | 131.73 | % | | 128.12 | % | | 125.53 | % | ||||||||||||
| Percentage of average equity to average assets | | | | | | 10.85 | % | | 12.90 | % | | 12.66 | % |
^1^Taxable equivalent
^2^Includes average balance of $208,814 in PPP loans for the quarter ended June 30, 2020
^3^ Includes average balance of $108,082 in Paycheck Protection Program Liquidity Facility (“PPPLF”) funding for the quarter ended June 30, 2020
10
SmartFinancial, Inc. and Subsidiary
Condensed Consolidated Financial Information - (unaudited)
(dollars in thousands)
YIELD ANALYSIS
| | | | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Six Months Ended | ||||||||||||||||
| | | June 30, 2020 | | June 30, 2019 | | |||||||||||||
| | Average | | | Yield/ | Average | | | Yield/ | ||||||||||
| | | Balance | | Interest^1^ | | Cost^1^ | | Balance | | Interest^1^ | | Cost^1^ | | |||||
| Assets: | | | | | | |||||||||||||
| Loans, including fees^2^ | | $ | 2,172,158 | | $ | 54,979 | | 5.09 | % | $ | 1,814,127 | | $ | 50,174 | 5.58 | % | ||
| Loans held for sale | | | 5,581 | | | 118 | | | 4.26 | % | | 3,284 | | | 79 | | 4.85 | % |
| Taxable securities | | 119,474 | | 1,268 | | 2.13 | % | 141,994 | | 1,842 | 2.62 | % | ||||||
| Tax-exempt securities | | 78,306 | | 970 | | 2.49 | % | 55,070 | | 1,065 | 3.90 | % | ||||||
| Federal funds sold and other earning assets | | 226,726 | | 879 | | 0.78 | % | 85,798 | | 1,315 | 3.09 | % | ||||||
| Total interest-earning assets | | 2,602,245 | | 58,214 | | 4.50 | % | 2,100,273 | | 54,475 | 5.23 | % | ||||||
| Noninterest-earning assets | | 238,749 | | | | | | 213,122 | | | ||||||||
| Total assets | | $ | 2,840,994 | | | | | | | | $ | 2,313,395 | | | ||||
| | | | | | | | | | | | | | | | | | | |
| Liabilities and Stockholders’ Equity: | | | | | | | ||||||||||||
| Interest-bearing demand deposits | | $ | 421,288 | | 583 | | 0.28 | % | $ | 318,091 | | 887 | 0.56 | % | ||||
| Money market and savings deposits | | 707,003 | | 2,003 | | 0.57 | % | 669,067 | | 4,302 | 1.30 | % | ||||||
| Time deposits | | 693,382 | | 5,534 | | 1.61 | % | 633,601 | | 5,850 | 1.86 | % | ||||||
| Total interest-bearing deposits | | 1,821,673 | | 8,120 | | 0.90 | % | 1,620,759 | | 11,039 | 1.37 | % | ||||||
| Borrowings^3^ | | 144,532 | | 339 | | 0.47 | % | 20,951 | | 235 | 2.26 | % | ||||||
| Subordinated debt | | 39,279 | | 1,167 | | 5.97 | % | 39,195 | | 1,173 | 6.04 | % | ||||||
| Total interest-bearing liabilities | | 2,005,484 | | 9,626 | | 0.97 | % | 1,680,905 | | 12,447 | 1.49 | % | ||||||
| Noninterest-bearing deposits | | 481,432 | | | | | | 328,549 | | | | |||||||
| Other liabilities | | 22,812 | | | | | | 12,589 | | | | |||||||
| Total liabilities | | 2,509,728 | | | | | | 2,022,043 | | | | |||||||
| Shareholders' equity | | 331,266 | | | | | | 291,352 | | | | |||||||
| Total liabilities and shareholders' equity | | $ | 2,840,994 | | | | | | | | $ | 2,313,395 | | | | |||
| | | | | | | | | | | | | | | | | | | |
| Net interest income, taxable equivalent | | | | | $ | 48,588 | | | | | | $ | 42,028 | | | |||
| Interest rate spread | | | | | | 3.53 | % | | 3.74 | % | ||||||||
| Tax equivalent net interest margin | | | | | | 3.75 | % | | 4.04 | % | ||||||||
| | | | | | | | | | | | | | | | | | | |
| Percentage of average interest-earning assets to average interest-bearing liabilities | | | | | | 129.76 | % | | 124.95 | % | ||||||||
| Percentage of average equity to average assets | | | | | | 11.66 | % | | 12.59 | % |
^1^Taxable equivalent
^2^Includes average balance of $106,213 in PPP loans for the six months ended June 30, 2020
^3^ Includes average balance of $54,041in PPPLF funding for the six months ended June 30, 2020
11
SmartFinancial, Inc. and Subsidiary
Condensed Consolidated Financial Information - (unaudited)
(dollars in thousands)
NON-GAAP RECONCILIATIONS
| | | | | | | | | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Three Months Ended | | Six Months Ended | | ||||||||||||||||||
| | Jun | Mar | Dec | Sep | Jun | Jun | Jun | | |||||||||||||||
| | | 2020 | | 2020 | | 2019 | | 2019 | | 2019 | | | 2020 | | 2019 | | |||||||
| Operating Earnings: | | | | | | | | | | | | | | ||||||||||
| Net income (GAAP) | | $ | 6,174 | | $ | 2,732 | | $ | 6,733 | | $ | 5,963 | | $ | 9,121 | | | $ | 8,907 | | $ | 13,852 | |
| Noninterest income: | | | | | | | | | | ||||||||||||||
| Securities gains | | (16) | | — | | — | | (1) | | (33) | | | (16) | | (33) | | |||||||
| ADECA termination proceeds | | — | | — | | (720) | | — | | — | | | — | | — | | |||||||
| Merger termination fee | | — | | — | | — | | — | | (6,400) | | | — | | (6,400) | | |||||||
| Noninterest expenses: | | | | | | | | | | | | | | | | | |||||||
| Salaries - prior year adjustment | | — | | — | | 603 | | — | | — | | | — | | — | | |||||||
| Merger related and restructuring expenses | | 1,477 | | 2,096 | | 427 | | 73 | | 1,796 | | | 3,573 | | 2,719 | | |||||||
| Other - prior year franchise tax true-up | | — | | — | | (312) | | — | | — | | | — | | — | | |||||||
| Income taxes: | | | | | | | | | | | | | | | | | |||||||
| Tax benefit - prior year amended return | | — | | — | | (304) | | — | | — | | | — | | — | | |||||||
| Income tax effect of adjustments | | (382) | | (548) | | 60 | | (19) | | 1,119 | | | (931) | | 974 | | |||||||
| Operating earnings (Non-GAAP) | | $ | 7,253 | | $ | 4,280 | | $ | 6,487 | | $ | 6,016 | | $ | 5,603 | | | $ | 11,533 | | $ | 11,112 | |
| Operating earnings per common share (Non-GAAP): | | | | | | | | | | ||||||||||||||
| Basic | | $ | 0.48 | | $ | 0.30 | | $ | 0.46 | | $ | 0.43 | | $ | 0.40 | | | $ | 0.78 | | $ | 0.80 | |
| Diluted | | 0.48 | | 0.30 | | 0.46 | | 0.43 | | 0.40 | | | 0.78 | | 0.79 | | |||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
| Operating Noninterest Income: | | | | | | | | | | ||||||||||||||
| Noninterest income (GAAP) | | $ | 3,511 | | $ | 2,818 | | $ | 2,840 | | $ | 2,196 | | $ | 8,416 | | | $ | 6,330 | | $ | 10,114 | |
| Securities gains | | (16) | | — | | — | | (1) | | (33) | | | (16) | | (33) | | |||||||
| ADECA termination proceeds | | — | | — | | (720) | | — | | — | | | — | | — | | |||||||
| Merger termination fee | | — | | — | | — | | — | | (6,400) | | | — | | (6,400) | | |||||||
| Operating noninterest income (Non-GAAP) | | $ | 3,495 | | $ | 2,818 | | $ | 2,120 | | $ | 2,195 | | $ | 1,983 | | | $ | 6,314 | | $ | 3,681 | |
| Operating noninterest income (Non-GAAP)/average assets^1^ | | 0.45 | % | 0.44 | % | 0.35 | % | 0.37 | % | 0.34 | % | | 0.45 | % | 0.32 | % | |||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
| Operating Noninterest Expense: | | | | | | | | | | ||||||||||||||
| Noninterest expense (GAAP) | | $ | 18,806 | | $ | 18,793 | | $ | 16,052 | | $ | 14,708 | | $ | 16,809 | | | $ | 37,600 | | $ | 32,388 | |
| Salaries - prior year adjustment | | — | | — | | (603) | | — | | — | | | — | | — | | |||||||
| Merger related and restructuring expenses | | (1,477) | | (2,096) | | (427) | | (73) | | (1,796) | | | (3,573) | | (2,719) | | |||||||
| Other - prior year franchise tax true-up | | — | | — | | 312 | | — | | — | | | — | | — | | |||||||
| Operating noninterest expense (Non-GAAP) | | $ | 17,329 | | $ | 16,697 | | $ | 15,334 | | $ | 14,635 | | $ | 15,013 | | | $ | 34,027 | | $ | 29,669 | |
| Operating noninterest expense (Non-GAAP)/average assets^2^ | | 2.23 | % | 2.63 | % | 2.56 | % | 2.47 | % | 2.57 | % | | 2.41 | % | 2.59 | % | |||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
| Operating Pre-tax Pre-provision ("PTPP") Earnings: | | | | | | | | | | | | | | | | | | | | | | | |
| Net interest income (GAAP) | | $ | 25,746 | | $ | 22,571 | | $ | 21,104 | | $ | 21,140 | | $ | 20,802 | | | $ | 48,317 | | $ | 41,799 | |
| Operating noninterest income | | | 3,495 | | | 2,818 | | | 2,120 | | | 2,195 | | | 1,983 | | | | 6,314 | | | 3,681 | |
| Operating noninterest expense | | | (17,329) | | | (16,697) | | | (15,334) | | | (14,635) | | | (15,013) | | | | (34,027) | | | (29,669) | |
| Operating PTPP earnings (Non-GAAP) | | $ | 11,912 | | $ | 8,692 | | $ | 7,890 | | $ | 8,700 | | $ | 7,772 | | | $ | 20,604 | | $ | 15,811 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Non-GAAP Return Ratios: | | | | | | | | | | ||||||||||||||
| Operating return on average assets (Non-GAAP)^3^ | | 0.93 | % | 0.67 | % | 1.08 | % | 1.02 | % | 0.96 | % | | 0.82 | % | 0.97 | % | |||||||
| Operating PTPP return on average assets (Non-GAAP)^4^ | | | 1.53 | % | | 1.37 | % | | 1.31 | % | | 1.47 | % | | 1.33 | % | | | 1.46 | % | | 1.38 | % |
| Return on average tangible common equity (Non-GAAP)^5^ | | 9.80 | % | 4.41 | % | 11.55 | % | 10.52 | % | 16.78 | % | | 7.23 | % | 13.14 | % | |||||||
| Operating return on average shareholder equity (Non-GAAP)^6^ | | 8.58 | % | 5.22 | % | 8.34 | % | 7.87 | % | 7.58 | % | | 7.00 | % | 7.69 | % | |||||||
| Operating return on average tangible common equity (Non-GAAP)^7^ | | 11.51 | % | 6.90 | % | 11.12 | % | 10.61 | % | 10.31 | % | | 9.36 | % | 10.54 | % | |||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
| Operating Efficiency Ratio: | | | | | | | | | | ||||||||||||||
| Efficiency ratio (GAAP) | | 64.28 | % | 74.02 | % | 67.04 | % | 63.03 | % | 57.53 | % | | 68.81 | % | 62.39 | % | |||||||
| Adjustment for taxable equivalent yields | | (0.34) | % | (0.34) | % | (0.33) | % | (0.30) | % | (0.23) | % | | (0.34) | % | (0.28) | % | |||||||
| Adjustment for securities gains (losses) | | (0.04) | % | — | % | — | % | — | % | (0.07) | % | | (0.02) | % | (0.04) | % | |||||||
| Adjustment for merger related income and costs | | (4.95) | % | (8.21) | % | (1.76) | % | (0.31) | % | 8.32 | % | | (6.46) | % | 2.84 | % | |||||||
| Operating efficiency ratio (Non-GAAP) | | 58.95 | % | 65.46 | % | 64.95 | % | 62.42 | % | 65.56 | % | | 61.98 | % | 64.91 | % |
^1^Operating noninterest income (Non-GAAP) is annualized and divided by average assets.
^2^Operating noninterest expense (Non-GAAP) is annualized and divided by average assets.
^3^Operating return on average assets (Non-GAAP) is the annualized operating earnings (Non-GAAP) divided by average assets.
^4^Operating PTPP return on average assets (Non-GAAP) is the annualized operating PTPP earnings (Non-GAAP) divided by average assets.
^5^Return on average tangible common equity (Non-GAAP) is the annualized net income divided by average tangible common equity (Non-GAAP).
^6^Operating return on average equity (Non-GAAP) is the annualized operating earnings (Non-GAAP) divided by average equity.
^7^Operating return on average tangible common equity (Non-GAAP) is the annualized operating earnings (Non-GAAP) divided by average tangible common equity (Non-GAAP).
12
SmartFinancial, Inc. and Subsidiary
Condensed Consolidated Financial Information - (unaudited)
(dollars in thousands)
NON-GAAP RECONCILIATIONS
| | | | | | | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Three Months Ended | Six Months Ended | ||||||||||||||||||
| | Jun | Mar | Dec | Sep | Jun | Jun | Jun | ||||||||||||||
| | | 2020 | | 2020 | | 2019 | | 2019 | | 2019 | | 2020 | | 2019 | |||||||
| Tangible Common Equity: | | | | | | | | | | | | ||||||||||
| Shareholders' equity (GAAP) | | $ | 343,488 | | $ | 336,200 | | $ | 312,747 | | $ | 306,040 | | $ | 299,611 | | $ | 343,488 | | $ | 299,611 |
| Less goodwill and other intangible assets | | 86,327 | | 86,503 | | 77,193 | | 77,534 | | 78,348 | | 86,327 | | 78,348 | |||||||
| Tangible common equity (Non-GAAP) | | $ | 257,161 | | $ | 249,697 | | $ | 235,554 | | $ | 228,506 | | $ | 221,263 | | $ | 257,161 | | $ | 221,263 |
| | | | | | | | | | | | | | | | | | | | | | |
| Average Tangible Common Equity: | | | | | | | | ||||||||||||||
| Average shareholders' equity (GAAP) | | $ | 339,861 | | $ | 329,692 | | $ | 308,772 | | $ | 303,200 | | $ | 296,570 | | $ | 331,266 | | $ | 291,352 |
| Less average goodwill and other intangible assets | | 86,484 | | 80,370 | | 77,400 | | 78,222 | | 78,564 | | 83,427 | | 78,738 | |||||||
| Average tangible common equity (Non-GAAP) | | $ | 253,377 | | $ | 249,322 | | $ | 231,372 | | $ | 224,978 | | $ | 218,006 | | $ | 247,839 | | $ | 212,614 |
| | | | | | | | | | | | | | | | | | | | | | |
| Tangible Book Value per Common Share: | | | | | | | | | | | | | | | | | | | | | |
| Book value per common share (GAAP) | | $ | 22.57 | | $ | 22.09 | | $ | 22.33 | | $ | 21.93 | | $ | 21.47 | | $ | 22.57 | | $ | 21.47 |
| Adjustment due to goodwill and other intangible assets | | | (5.67) | | | (5.69) | | | (5.51) | | | (5.56) | | | (5.61) | | | (5.67) | | | (5.61) |
| Tangible book value per common share (Non-GAAP)^1^ | | $ | 16.90 | | $ | 16.40 | | $ | 16.82 | | $ | 16.37 | | $ | 15.86 | | $ | 16.90 | | $ | 15.86 |
| | | | | | | | | | | | | | | | | | | | | | |
| Tangible Common Equity to Tangible Assets: | | | | | | | | | | | | | | | | | | | | | |
| Total Assets | | $ | 3,265,985 | | $ | 2,873,715 | | $ | 2,449,123 | | $ | 2,390,485 | | $ | 2,391,257 | | $ | 3,265,985 | | $ | 2,391,257 |
| Less goodwill and other intangibles | | | 86,327 | | | 86,503 | | | 77,193 | | | 77,534 | | | 78,348 | | | 86,327 | | | 78,348 |
| Tangible Assets (Non-GAAP): | | $ | 3,179,658 | | $ | 2,787,212 | | $ | 2,371,930 | | $ | 2,312,951 | | $ | 2,312,909 | | $ | 3,179,658 | | $ | 2,312,909 |
| Tangible common equity to tangible assets (Non-GAAP) | | | 8.09% | | | 8.96% | | | 9.93% | | | 9.88% | | | 9.57% | | | 8.09% | | | 9.57% |
^1^Tangible book value per share is computed by dividing total stockholder's equity, less goodwill and other intangible assets by common shares outstanding. 13
Exhibit 99.2
| INVESTOR CALL<br>2Q 2020<br>July 22, 2020, 10:00am<br>Webcast: www.smartbank.com<br>(Investor Relations)<br>Audio Only: 888-317-6003<br>Confirmation #: 5925756<br>Miller Welborn<br>Chairman of the Board<br>Billy Carroll<br>President & CEO |
|---|
| Legal Disclaimer 2<br>Forward-Looking Statements<br>This presentation may contain statements that are based on management’s current<br>estimates or expectations of future events or future results, and that may be deemed to<br>constitute forward-looking statements as defined under the Private Securities Litigation<br>Reform Act of 1995. These statements, including statements regarding the potential effects<br>of the COVID-19 pandemic on the Company’s business and financial results and conditions,<br>are not historical in nature and can generally be identified by such words as “expect,”<br>“anticipate,” “intend,” “plan,” “believe,” “seek,” “may,” “estimate,” and similar expressions.<br>All forward-looking statements are subject to risks, uncertainties, and other factors that may<br>cause the actual results of SmartFinancial to differ materially from future results expressed<br>or implied by such forward-looking statements. Such risks, uncertainties, and other factors<br>include, among others, (1) the risk of litigation and reputational risk associated with historic<br>acquisition activity;(2) the risk that cost savings and revenue synergies from recently<br>completed acquisitions may not be realized or may take longer than anticipated to realize;<br>(3) disruption from recently completed acquisitions with customer, supplier, employee, or<br>other business relationships;(4) our ability to successfully integrate the businesses acquired<br>as part of previous acquisitions with the business of SmartBank;(5) risks related to the<br>completed acquisition of Progressive Financial Group, Inc.(“PFG”);(6) the risk that the<br>anticipated benefits from the completed acquisition of PFG may not be realized in the time<br>frame anticipated;(7) changes in management’s plans for the future;(8) prevailing, or<br>changes in, economic or political conditions, particularly in our market areas;(9) credit risk<br>associated with our lending activities;(10) changes in interest rates, loan demand, real estate<br>values, or competition;(11) changes in accounting principles, policies, or guidelines;(12)<br>changes in applicable laws, rules, or regulations, including changes to statutes, regulations or<br>regulatory policies or practices as a result of, or in response to, COVID-19;(13) adverse<br>results from current or future litigation, regulatory examinations or other legal and/or<br>regulatory actions, including as a result of the Company’s participation in and execution of<br>government programs related to the COVID-19 pandemic;(14) the impact of the COVID-19<br>pandemic on the Company’s assets, business, cash flows, financial condition, liquidity,<br>prospects and results of operations;(15) potential increases in the provision for loan losses<br>resulting from the COVID-19 pandemic; and (16) other general competitive, economic,<br>political, and market factors, including those affecting our business, operations, pricing,<br>products, or services. These and other factors that could cause results to differ materially<br>from those described in the forward-looking statements can be found in SmartFinancial’s<br>most recent annual report on Form 10-K, quarterly reports on Form 10-Q, and current<br>reports on Form 8-K, in each case filed with or furnished to the Securities and Exchange<br>Commission (the “SEC”) and available on the SEC’s website (www.sec.gov). Undue reliance<br>should not be placed on forward-looking statements. SmartFinancial disclaims any obligation<br>to update or revise any forward-looking statements contained in this release, which speak<br>only as of the date hereof, whether as a result of new information, future events, or<br>otherwise.<br>Non-GAAP Financial Measures<br>Statements included in this presentation include Non-GAAP financial measures and should be read along<br>with the accompanying tables, which provide a reconciliation of Non-GAAP financial measures to GAAP<br>financial measures. SmartFinancial management uses several Non-GAAP financial measures, including:<br>(i) operating earnings, (ii) operating return on average assets, (iii) operating return on average<br>shareholder equity, (iv) return on average tangible common equity, (v) operating return on average<br>tangible common equity, (vi) operating efficiency ratio;(vii) tangible common equity;(viii) average<br>tangible common equity;(ix) tangible book value;(x) operating pre-tax pre-provision earnings;(xi)<br>operating noninterest income;(xii) operating noninterest expense; and ratios derived therefrom, in its<br>analysis of the company's performance. Operating earnings excludes the following from net income:<br>securities gains and losses, merger termination fee of $6.4 million in the second quarter of 2019, merger<br>related and restructuring expenses, the effect of the December 2017 tax law change on deferred tax<br>assets, tax benefit from director options previously exercised, and the income tax effect of adjustments.<br>Operating return on average assets is the annualized operating earnings divided by average assets.<br>Operating return on average shareholder equity is the annualized operating earnings divided by average<br>equity. Return on average tangible common equity is the annualized net income divided by average<br>tangible common equity. Operating return on average tangible common equity is the annualized<br>operating earnings divided by average tangible common equity (Non-GAAP). The operating efficiency<br>ratio includes an adjustment for taxable equivalent yields and excludes securities gains and losses and<br>merger related and restructuring expenses from the efficiency ratio. Tangible common equity and<br>average tangible common equity excludes goodwill and other intangible assets from shareholders’<br>equity (GAAP) and average shareholders’ equity (GAAP). Tangible book value excludes goodwill and<br>other intangible assets less shareholders’ equity (GAAP) divided by common shares outstanding.<br>Operating pre-tax pre-provision earnings is net interest income (GAAP) plus operating noninterest<br>income (Non-GAAP) less operating noninterest expense (Non-GAAP). Operating noninterest income<br>excludes the following from noninterest income: securities gains and losses, expenses related to the<br>termination of the ADECA loan program and the merger termination fee of $6.4 million in the second<br>quarter of 2019. Operating noninterest expense excludes the following from noninterest expense: prior<br>year adjustments to salaries, merger related and restructuring expenses and certain franchise tax true-<br>up expenses. Management believes that Non-GAAP financial measures provide additional useful<br>information that allows investors to evaluate the ongoing performance of the company and provide<br>meaningful comparisons to its peers. Management believes these non-GAAP financial measures also<br>enhance investors' ability to compare period-to-period financial results and allow investors and<br>company management to view our operating results excluding the impact of items that are not reflective<br>of the underlying operating performance. Non-GAAP financial measures should not be considered as an<br>alternative to any measure of performance or financial condition as promulgated under GAAP, and<br>investors should consider SmartFinancial's performance and financial condition as reported under GAAP<br>and all other relevant information when assessing the performance or financial condition of the<br>company. Non-GAAP financial measures have limitations as analytical tools, and investors should not<br>consider them in isolation or as a substitute for analysis of the results or financial condition as reported<br>under GAAP. |
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| Overview of SmartFinancial 3<br>▪ SmartFinancial, Inc. (Nasdaq: SMBK) is a $3.3 billion asset<br>bank holding company headquartered in Knoxville,<br>Tennessee<br>▪ Operates one subsidiary bank, SmartBank, which was founded in<br>January 2007<br>▪ Located primarily in attractive, high-growth markets throughout<br>East/Mid Tennessee, Alabama and the Florida Panhandle<br>▪ 475 full-time employees<br>▪ Balance Sheet (6/30/20)<br>▪ Assets: $3.3 billion<br>▪ Gross Loans: $2.4 billion<br>▪ Deposits: $2.5 billion<br>▪ Shareholders’ Equity / Tangible Common Equity (Non-GAAP): $343.5<br>million / $257.2 million<br>▪ Profitability (Q2 ’20)<br>▪ Net Income / Operating Earnings (Non-GAAP): $6.2 million / $7.3<br>million<br>▪ Operating Pre-Tax Pre-Provision Earnings (Non-GAAP): $11.9 million<br>▪ ROAA / Operating ROAA (Non-GAAP): 0.79% / 0.93%<br>▪ ROATCE / Operating ROATCE (Non-GAAP): 9.80% / 11.51%<br>▪ Efficiency Ratio / Operating Efficiency Ratio (Non-GAAP): 64.3% / 59.0%<br>▪ Asset Quality<br>▪ Superior asset quality and proven credit culture<br>▪ NPAs / Total Assets of 0.28%<br>▪ Reserves / Loans: 0.67%<br>▪ Regularly Quarterly Dividend<br>▪ Declared quarterly cash dividend of $0.05 per share<br>Financial data as of or for the three months ended 6/30/20<br>Note: For a reconciliation of Non-GAAP financial measures to their most directly comparable GAAP measures, see the Appendix<br>Footprint:<br>36 full service<br>branches<br>2 LPOs |
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| Culture 4<br>We are building a culture where Associates thrive and<br>are empowered to be leaders. The core values that<br>we have established as a company help us operate in<br>unison and have become a critical part of our culture.<br>Our Associates are key to SmartBank’s success.<br>POSITIONING STATEMENT<br>At SmartBank, delivering unparalleled value to our<br>Shareholders, Associates, Clients and the Communities<br>we serve drives every decision and action we take.<br>Exceptional value means being there with smart<br>solutions, fast responses and deep commitment<br>every single time. By doing this, we will create the<br>Southeast’s next, great community banking franchise. |
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| COVID-19 Update 5<br>COVID-19 Actions<br>• Pandemic Response Team meets regularly to share latest COVID updates or impacts that we are<br>seeing in all regions across our footprint.<br>• Continue to evaluate markets on a case by case basis as to bank operations or any changes that<br>need to be made to protect associates and clients.<br>• Ongoing communication shared with associates on best practices regarding a safe work<br>environment.<br>• Provided all branches with acrylic counter-shields to be used in teller stations and pods to create<br>space between client and associate.<br>• Provided all locations with social distance floor markers.<br>• Provided all locations with marketing collateral (signage posters/tent cards) with tips to promote a<br>healthy & safe working environment. |
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| Second Quarter Financial Highlights |
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| Quarterly Highlights 7<br>Note: For a reconciliation of Non-GAAP financial measures to their most directly comparable GAAP measures, see the Appendix<br>($ in thousands, except per share data) 2Q20 1Q20 Change<br>Net interest income 25,746 $ 22,571 $ 3,175 $<br>Provision for loan losses 2,850 3,200 (350)<br>Noninterest income 3,511 2,818 693<br>Noninterest expense 18,806 18,793 13<br>Income tax expense 1,427 664 763<br>Net income 6,174 2,732 3,442<br>Non-GAAP Reconciliations<br>Noninterest income (16) - (16)<br>Noninterest expense 1,477 2,096 (619)<br>Income taxes (382) (548) 166<br>Operating earnings (Non-GAAP) 7,253 $ 4,280 $ 2,973 $<br>Operating Pre-Tax Pre-Provision Earnings (Non-GAAP) 11,912 $ 8,692 $ 3,220 $<br>Non-GAAP Performance Metrics<br>Diluted operating earnings per share 0.48 $ 0.30 $ 0.18 $<br>Tangible book value per share 16.90 16.40 0.50<br>Operating return on average assets 0.93% 0.67% 0.26%<br>Operating PTPP return on average assets 1.53% 1.37% 0.16%<br>Operating return on average tangible common equity 11.51% 6.90% 4.61%<br>Operating efficiency ratio 58.95% 65.46% (6.51%) |
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| Operating PTPP Earnings 8<br>Note: For a reconciliation of Non-GAAP financial measures to their most directly comparable GAAP measures, see the Appendix<br>$6,967 $6,770<br>$8,786<br>$8,039 $7,772<br>$8,700<br>$7,890<br>$8,692<br>$11,912<br>$0<br>$2,000<br>$4,000<br>$6,000<br>$8,000<br>$10,000<br>$12,000<br>$14,000<br>2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20<br>Operating PTPP Earnings (Non-GAAP)<br>($ in thousands)<br>Operating PTPP Earnings, Less Accretion & PPP Fees Accretion PPP fees |
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| Performance Trends 9<br>$2,062 $2,051<br>$2,274 $2,354 $2,391 $2,390 $2,449<br>$2,874<br>$3,266<br>$0<br>$500<br>$1,000<br>$1,500<br>$2,000<br>$2,500<br>$3,000<br>$3,500<br>2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20<br>Total Assets, Loans and Deposits<br>($ in millions)<br>Assets Loans Deposits |
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| Performance Trends 10<br>1.56 %<br>1.01 % 1.12 %<br>0.43 %<br>0.79 % 0.67 %<br>0.93 %<br>1.47 %<br>1.31 % 1.37 %<br>1.53 %<br>—%<br>0.20 %<br>0.40 %<br>0.60 %<br>0.80 %<br>1.00 %<br>1.20 %<br>1.40 %<br>1.60 %<br>1.80 %<br>2Q19 3Q19 4Q19 1Q20 2Q20<br>ROAA (%): Reported, Operating, Operating PTPP ROAA<br>ROAA Operating ROAA ⁽¹⁾ Operating PTPP ROAA ⁽¹⁾<br>16.8 %<br>10.5 % 11.6 %<br>4.4 %<br>9.8 %<br>6.9 %<br>11.5 %<br>—%<br>2.0 %<br>4.0 %<br>6.0 %<br>8.0 %<br>10.0 %<br>12.0 %<br>14.0 %<br>16.0 %<br>18.0 %<br>2Q19 3Q19 4Q19 1Q20 2Q20<br>ROATCE (%)<br>ROATCE Operating ROATCE ⁽¹⁾<br>(1) Note: For a reconciliation of Non-GAAP financial measures to their most directly comparable GAAP measures, see the Appendix |
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| Performance Trends 11<br>57.5 %<br>63.0 %<br>67.0 %<br>74.0 %<br>64.3 %<br>45.0 %<br>50.0 %<br>55.0 %<br>60.0 %<br>65.0 %<br>70.0 %<br>75.0 %<br>80.0 %<br>2Q19 3Q19 4Q19 1Q20 2Q20<br>Efficiency Ratio (%)<br>Efficiency Ratio Operating Efficiency Ratio ⁽¹⁾<br>$21.47 $21.93 $22.33 $22.09 $22.57<br>$15.86 $16.37 $16.82 $16.40 $16.90<br>$15.00<br>$18.00<br>$21.00<br>$24.00<br>2Q19 3Q19 4Q19 1Q20 2Q20<br>Book Value per Share<br>Book Value Tangible Book Value ⁽¹⁾<br>(1) Note: For a reconciliation of Non-GAAP financial measures to their most directly comparable GAAP measures, see the Appendix |
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| Net Interest Income 12<br>3.94% 3.91% 3.84% 3.90% 3.63%<br>5.53% 5.48% 5.36% 5.35%<br>4.87%<br>0.00%<br>1.00%<br>2.00%<br>3.00%<br>4.00%<br>5.00%<br>6.00%<br>2Q19 3Q19 4Q19 1Q20 2Q20<br>Net Interest Margin<br>Net Interest Margin (FTE) Loan Yield<br>Cost of Funds Interest Bearing Liabilities<br>($mm)<br>2Q20 1Q20 Change<br>Cash and cash equivalents $ 399.5 309.1 $ 90.4 $<br>Unpledged investment securities 140.2 105.3 34.9<br>Overnight Fed funds 69.6 69.6 -<br>FRB discount window 165.6 95.8 69.8<br>FHLB 52.0 52.0 -<br>Holding company line of credit 25.0 25.0 -<br>Total 851.9 $ 656.8 $ 195.1 $<br>Liqudity Funding Sources<br>2Q20 1Q20 Change<br>Loans, less accretion, less PPP fees 4.39% 4.98% (0.59%)<br>Accretion 0.15% 0.37% (0.22%)<br>PPP Fees 0.33% 0.00% 0.33%<br>Loans including fees 4.87% 5.35% (0.48%)<br>Loans held for sale 4.28% 4.24% 0.04%<br>Taxable securities 1.94% 2.34% (0.40%)<br>Tax-exempt securities (FTE) 2.66% 2.28% 0.38%<br>Federal funds and other investments 0.37% 1.46% (1.09%)<br>Interest earning asset yields 4.22% 4.83% (0.61%)<br>Total interest-bearing deposits 0.71% 1.10% (0.39%)<br>Borrowings 0.42% 0.69% (0.27%)<br>Subordinated debt 5.98% 5.98% -<br>Total interest-bearing liabilities 0.77% 1.20% (0.43%)<br>Net interest margin (FTE) 3.63% 3.90% (0.27%)<br>Net interest margin (FTE - Less accretion) 3.50% 3.58% (0.08%)<br>Cost of funds 0.61% 0.99% (0.38%)<br>($ in thousands)<br>Net interest income (FTE) 25,900 $ 22,688 $ 3,212 $<br>Average earning assets 2,872,027 2,340,037 531,990<br>Average Yields and Rates |
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| Operating Noninterest Income (Non-GAAP) 13<br>Note: For a reconciliation of Non-GAAP financial measures to their most directly comparable GAAP measures, see the Appendix<br>$1,983 $2,195 $2,120<br>$2,818<br>$3,495<br>$0<br>$500<br>$1,000<br>$1,500<br>$2,000<br>$2,500<br>$3,000<br>$3,500<br>$4,000<br>2Q19 3Q19 4Q19 1Q20 2Q20<br>Operating Noninterest Income (Non-GAAP)<br>($ in thousands)<br>Other noninterest income<br>Interchange fees<br>Investment services income<br>Insurance commissions<br>Mortgage banking income<br>Service charges on deposit accounts |
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| Operating Noninterest Expense (Non-GAAP) 14<br>Note: For a reconciliation of Non-GAAP financial measures to their most directly comparable GAAP measures, see the Appendix<br>$15,013 $14,635 $15,334<br>$16,697 $17,329<br>$0<br>$2,000<br>$4,000<br>$6,000<br>$8,000<br>$10,000<br>$12,000<br>$14,000<br>$16,000<br>$18,000<br>$20,000<br>2Q19 3Q19 4Q19 1Q20 2Q20<br>Operating Noninterest Expense (Non-GAAP)<br>($ in thousands)<br>Other<br>Professional services<br>Amortization of intangibles<br>Data processing<br>Occupancy<br>Salaries & benefits |
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| Attractive Deposit Mix 15<br>Noninterest<br>demand<br>25%<br>Interest-bearing demand<br>19%<br>Money market and savings<br>30%<br>Time deposits<br>26%<br>Deposit Compostion (6/30/20)<br>$2,012 $1,998 $2,047<br>$2,342<br>$2,540<br>$0<br>$500<br>$1,000<br>$1,500<br>$2,000<br>$2,500<br>$3,000<br>2Q19 3Q19 4Q19 1Q20 2Q20<br>Historical Deposit Compostion ($mm)<br>Noninterest demand Interest-bearing demand<br>Money market and savings Time deposits 0.00%<br>0.50%<br>1.00%<br>1.50%<br>2.00%<br>2.50%<br>3.00%<br>2Q19 3Q19 4Q19 1Q20 2Q20<br>Historical Cost of Deposits<br>Cost of Total Deposits<br>Fed Funds Target<br>Cost of Interest Bearing Deposits |
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| Overview of Loan Portfolio 16<br>C&I 26%<br>C&D<br>12%<br>CRE, Owner Occupied<br>19%<br>CRE, Non Owner<br>Occupied<br>23%<br>Consumer RE<br>19%<br>Other<br><1%<br>Loan Composition (6/30/20)<br>273.0%<br>91.7%<br>0%<br>100%<br>200%<br>300%<br>400%<br>2Q19 3Q19 4Q19 1Q20 2Q20<br>CRE Ratios<br>CRE C&D<br>$1,833 $1,865 $1,897<br>$2,139<br>$2,408<br>$0<br>$500<br>$1,000<br>$1,500<br>$2,000<br>$2,500<br>$3,000<br>2Q19 3Q19 4Q19 1Q20 2Q20<br>Historical Loan Composition ($mm)<br>C&I C&D CRE, Owner Occupied CRE, Non Owner Occupied Consumer RE Other |
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| Asset Quality 17<br>• NPAs increased due to the acquisition of ORE<br>assets from PFG in Q1 2020<br>• Delinquencies remain at low levels<br>• Asset quality remains strong with nonperforming<br>assets to total assets of 0.28%<br>• Credit quality remains strong with classified loans /<br>total loans of 0.27%<br>• Disciplined credit culture remains strong, driven by<br>our conservative underwriting standards<br>0.28% 0.31% 0.27%<br>0.39%<br>0.27%<br>0.00% 0.01% 0.01% 0.00% 0.00%<br>0.00%<br>0.05%<br>0.10%<br>0.15%<br>0.20%<br>0.25%<br>0.30%<br>0.35%<br>0.40%<br>0.45%<br>2Q19 3Q19 4Q19 1Q20 2Q20<br>Credit Quality<br>Classified Loans / Total Loans Net Chargeoffs<br>$5,807 $5,388<br>$7,156<br>$15,821<br>$9,005<br>0.32% 0.29% 0.38%<br>0.74%<br>0.37%<br>0.20%<br>0.40%<br>0.60%<br>0.80%<br>1.00%<br>1.20%<br>1.40%<br>1.60%<br>1.80%<br>$0<br>$5,000<br>$10,000<br>$15,000<br>$20,000<br>2Q19 3Q19 4Q19 1Q20 2Q20<br>Delinquent and Nonaccruals / Total Loans<br>($ in thousands)<br>Total Delinquent and Nonaccrual Loans<br>Total Delinquent and Nonaccrual Loans / Total Loans<br>$4,652 $4,727 $5,107<br>$8,963 $9,300<br>0.00%<br>0.20%<br>0.40%<br>0.60%<br>0.80%<br>1.00%<br>1.20%<br>1.40%<br>1.60%<br>1.80%<br>$0<br>$5,000<br>$10,000<br>$15,000<br>$20,000<br>2Q19 3Q19 4Q19 1Q20 2Q20<br>Nonperforming Assets<br>($ in thousands)<br>Nonperforming Loans OREO Nonperforming Assets / Total Assets |
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| COVID-19 Modified Loans 18<br>Source: Company information<br>Note: As of June 30, 2020<br>5.0%<br>44.8%<br>6.5% 8.8%<br>28.2%<br>6.5%<br>0.2%<br>25.6%<br>15.7% 14.7%<br>11.3%<br>1.8%<br>0.0%<br>5.0%<br>10.0%<br>15.0%<br>20.0%<br>25.0%<br>30.0%<br>35.0%<br>40.0%<br>45.0%<br>50.0%<br>June July August September October November December<br>COVID Modification Maturities<br>% Number of Total Modified Loans Total O/S Balance of Modifications / Total Loan Portfolio<br>Industries with Modifications O/S Balance<br>% of Total<br>Loan Portfolio<br>% of Total<br>Modified<br>Loans<br>Hospitality 145,364 $ 6.0% 23.6%<br>Overnight Rentals 72,601 3.0% 11.8%<br>Restaurants 69,300 2.9% 11.3%<br>CRE Retail 62,447 2.6% 10.1%<br>Religious Organizations 30,355 1.3% 4.9%<br>Lessors of Nonresidential Buildings 28,936 1.2% 4.7%<br>Medical 22,034 0.9% 3.6%<br>Amusement 19,531 0.8% 3.2%<br>Consumer 18,270 0.8% 3.0%<br>Trucking 17,696 0.7% 2.9%<br>Manufacturing 11,587 0.5% 1.9%<br>All Other Miscellaneous Industries 117,572 4.9% 19.0%<br>Total Modifications 615,693 25.6% 100.0%<br>Total Loan Portfolio 2,408,284 $ 100.0%<br>($ in thousands) |
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| Modified Hospitality Loans 19<br>Alabama<br>23%<br>FL Panhandle<br>20% Northeast TN<br>35%<br>Middle TN<br>9%<br>Southeast TN<br>13%<br>% Exposure by Region<br>Alabama FL Panhandle Northeast TN Middle TN Southeast TN<br>31.0%<br>4.7%<br>23.8%<br>40.5%<br>0.0%<br>5.0%<br>10.0%<br>15.0%<br>20.0%<br>25.0%<br>30.0%<br>35.0%<br>40.0%<br>45.0%<br>July August September October<br>Hospitality Modification Expiration by Month<br>Source: Company information<br>Note: As of June 30, 2020<br>($ in thousands)<br>Region O/S Balance % Exposure by Region Average LTV<br>Alabama 33,300 $ 22.9% 31.6%<br>FL Pandhandle 28,605 19.6% 32.1%<br>Northeast TN 50,819 35.0% 49.9%<br>Middle TN 12,785 8.8% 51.7%<br>Southeast TN 19,855 13.7% 46.5%<br>Total Modifications 145,364 100.0% 41.6%<br>Total Hotel Portfolio 151,248 $<br>% Modified of Total 96.1%<br>Modified Hospitality Loans By Region<br>($ in thousands)<br>Product<br>Loan<br>Count O/S Balance Average LTV<br>C & I 3 521 $ 19.9%<br>CRE NOO 35 136,200 42.6%<br>C & D 4 8,295 52.5%<br>Other 3 348 36.9%<br>Total 45 145,364 $ 41.6%<br>Modified Hospitality Loans by Product |
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| Modified Restaurant Loans 20<br>25.0%<br>2.2%<br>22.8%<br>41.3%<br>6.5%<br>2.2%<br>0.0%<br>5.0%<br>10.0%<br>15.0%<br>20.0%<br>25.0%<br>30.0%<br>35.0%<br>40.0%<br>45.0%<br>July August September October November December<br>Restaurant Modification Expiration by Month<br>Source: Company information<br>Note: As of June 30, 2020<br>($ in thousands)<br>Category<br>Loan<br>Count O/S Balance<br>Full-Service 66 48,942 $<br>Limited-Service 14 9,847<br>Drinking Places 6 8,214<br>Other 6 2,297<br>Total 92 69,300 $<br>Modified Loans by Restaurant Type<br>($ in thousands)<br>Region O/S Balance % Exposure by Region<br>Alabama 6,751 $ 9.7%<br>FL Panhandle 20,532 29.6%<br>Northeast TN 25,217 36.4%<br>Middle TN 3,345 4.8%<br>Southeast TN 13,455 19.5%<br>Total Modifications 69,300 $ 100.0%<br> Modified Restaurant Loans by Region<br>Alabama<br>10%<br>FL Panhandle<br>30%<br>Northeast TN<br>36%<br>Middle TN<br>5%<br>Southeast TN<br>19%<br>% Exposure by Region<br>Alabama FL Panhandle Northeast TN Middle TN Southeast TN |
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| Paycheck Protection Program 21<br>Client, 67.8%<br>Non-Client, 32.2%<br>Total PPP Loans: Client vs. Non-Client<br>($ in thousands)<br>Industry Loan Amount<br>Professional Services 42,479 $<br>Restaurants 39,318<br>Manufacturing 23,048<br>Medical 20,974<br>Construction 17,017<br>All Other Industries 150,860<br>Total 293,696 $<br>Total PPP Loans: Top Industries<br>Source: Company information<br>Note: As of July 14, 2020<br>State Loan Amount Loan Count<br>Client Loan<br>Amount Non-Client<br>Loan Amount<br>Alabama 61,256 $ 551 54,491 $ 6,765 $<br>Florida 18,211 202 10,954 7,257<br>Georgia 793 32 515 278<br>Tennessee 210,849 2,017 142,882 67,967<br>Other 2,587 25 1,243 1,344<br>Total 293,696 $ 2,827 210,085 $ 83,611 $<br>Total PPP Loans<br>SBA Fee Loan Count Loan Amount Fee Amount<br>1% 10 36,953 $ 370 $<br>3% 155 110,505 3,322<br>5% 2,662 146,238 7,324<br>Total 2,827 293,696 $ 11,016 $<br>Gross PPP Fees |
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| Reserve Reconciliation 22<br>0.00%<br>0.30%<br>0.60%<br>0.90%<br>$0<br>$5<br>$10<br>$15<br>$20<br>2Q19 3Q19 4Q19 1Q20 2Q20<br>Total Reserves ($mm)<br>Allowance for Loan Losses Acquired Loan Fair Value Discounts Allowance for Loan Losses / Total Loans<br>($ in thousands) 2Q19 3Q19 4Q19 1Q20 2Q20<br>Allowance for Loan Losses - Originated 8,979 $ 9,674 $ 9,969 $ 12,412 $ 14,590 $<br>Allowance for Loan Losses - Acquired 118 118 274 1,019 1,664<br>Acquired Loan Fair Value Discounts 15,871 16,784 15,348 17,237 16,187<br>Total Reserves 24,968 $ 26,576 $ 25,591 $ 30,668 $ 32,441 $<br>Originated Loans 1,349,686 $ 1,433,524 $ 1,521,364 $ 1,621,128 $ 1,639,805 $<br>SBA PPP Loans - - - - 292,774<br>Acquired Loans 483,216 431,155 376,028 518,119 475,705<br>Total Loans 1,832,902 $ 1,864,679 $ 1,897,392 $ 2,139,247 $ 2,408,284 $<br>Allowance / Total Loans 0.50% 0.53% 0.54% 0.63% 0.67%<br>Allowance / Total Loans, less PPP Loans - - - - 0.77%<br>Allowance / Originated Loans, less PPP Loans 0.67% 0.67% 0.66% 0.77% 0.89%<br>Allowance / Acquired Loans 0.02% 0.03% 0.07% 0.20% 0.35%<br>Discount / Acquired Loans 3.28% 3.89% 4.08% 3.33% 3.40%<br>Total Reserves / Total Loans 1.36% 1.43% 1.35% 1.43% 1.35%<br>Total Reserves / Total Loans, less PPP Loans 1.36% 1.43% 1.35% 1.43% 1.53% |
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| Current Capital Position 23<br>Note: Data as of the three months ended each respective quarter<br>Basel III Regulatory Capital Minimum To Be Considered “Well Capitalized”<br>9.57% 9.88% 9.93% 8.96% 8.09%<br>0.0%<br>4.0%<br>8.0%<br>12.0%<br>16.0%<br>2Q19 3Q19 4Q19 1Q20 2Q20<br>TCE / TA (%)<br>9.92% 10.02% 10.34% 10.28%<br>8.83%<br>0.0%<br>4.0%<br>8.0%<br>12.0%<br>16.0%<br>2Q19 3Q19 4Q19 1Q20 2Q20<br>Leverage Ratio (%)<br>11.21% 11.54% 11.61% 10.87% 10.92%<br>0.0%<br>4.0%<br>8.0%<br>12.0%<br>16.0%<br>2Q19 3Q19 4Q19 1Q20 2Q20<br>CET1 Ratio (%)<br>13.65% 13.98% 14.02% 13.13% 13.25%<br>0.0%<br>4.0%<br>8.0%<br>12.0%<br>16.0%<br>2Q19 3Q19 4Q19 1Q20 2Q20<br>Total Risk-Based Capital Ratio (%) |
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| Appendix |
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| Non-GAAP Reconciliations 25<br>1. Operating return on average assets (Non-GAAP) is the annualized operating earnings (Non-GAAP) divided by average assets.<br>2. Operating PTPP return on average assets (Non-GAAP) is the annualized operating PTPP earnings (Non-GAAP) divided by average assets.<br>3. Return on average tangible common equity (Non-GAAP) is the annualized net income divided by average tangible common equity (Non-GAAP).<br>4. Operating return on average shareholder equity (Non-GAAP) is the annualized operating earnings (Non-GAAP) divided by average shareholder equity.<br>5. Operating return on average tangible common equity (Non-GAAP) is the annualized operating earnings (Non-GAAP) divided by average tangible common equity (Non-GAAP).<br>6. Note: “ADECA” represents a program administered by the Alabama Department of Economic and Community Affairs<br>($ in thousands, except per share data) 2Q20 1Q20 4Q19 3Q19 2Q19<br>Operating Earnings:<br>Net income (GAAP) $ 6,174 2,732 $ 6,733 $ 5,963 $ 9,121 $<br>Noninterest income:<br>Securities (gains) losses (16) - - (1) (33)<br>ADECA termination proceeds - - (720) - -<br>Merger termination fee - - - - (6,400)<br>Noninterest expenses:<br>Salaries - prior year adjustment - - 603 - -<br>Merger related and restructuring expenses 1,477 2,096 427 73 1,796<br>Other - prior year franchise tax true-up - - (312) - -<br>Income taxes:<br>Tax benefit - prior year amended return - - (304) - -<br>Income tax effect of adjustments (382) (548) 60 (19) 1,119<br> Operating earnings (Non-GAAP) $ 7,253 4,280 $ 6,487 $ 6,016 $ 5,603 $<br>Operating earnings per common share:<br>Basic $ 0.48 $ 0.30 $ 0.46 $ 0.43 $ 0.40<br>Diluted 0.48 0.30 0.46 0.43 0.40<br>Operating Noninterest Income:<br>Noninterest income (GAAP) $ 3,511 2,818 $ 2,840 $ 2,196 $ 8,416 $<br>Securities (gain) losses (16) - - (1) (33)<br>ADECA termination proceeds - - (720) - -<br>Merger termination fee - - - - (6,400)<br>Operating noninterest income (Non-GAAP) $ 3,495 2,818 $ 2,120 $ 2,195 $ 1,983 $<br>Operating Noninterest Expense:<br>Noninterest expense (GAAP) $ 18,806 18,793 $ 16,052 $ 14,708 $ 16,809 $<br>Salaries - prior year adjustment - - (603) - -<br>Merger related and restructuring charges (1,477) (2,096) (427) (73) (1,796)<br>Other - prior year franchise tax true-up - - 312 - -<br>Operating noninterest expense (Non-GAAP) $ 17,329 16,697 $ 15,334 $ 14,635 $ 15,013 $<br>Operating Pre-Tax Pre-Provison ("PTPP") Earnings:<br>Net interest income (GAAP) 25,746 $ 22,571 $ 21,104 $ 21,140 $ 20,802 $<br>Operating noninterest income (Non-GAAP) 3,495 2,818 2,120 2,195 1,983<br>Operating noninterest expense (Non-GAAP) (17,329) (16,697) (15,334) (14,635) (15,013)<br> Operating PTPP earnings (Non-GAAP) 11,912 $ 8,692 $ 7,890 $ 8,700 $ 7,772 $<br>Non-GAAP Return Ratios:<br>Operating return on average assets (Non-GAAP)¹ 0.93% 0.67% 1.08% 1.02% 0.96%<br>Operating PTPP return on average assets (Non-GAAP)² 1.53% 1.37% 1.31% 1.47% 1.33%<br>Return on average tangible common equity (Non-GAAP)³ 9.80% 4.41% 11.55% 10.52% 16.78%<br>Operating return on average shareholder equity (Non-GAAP)⁴ 8.58% 5.22% 8.34% 7.87% 7.58%<br>Operating return on average tangible common equity (Non-GAAP)⁵ 11.51% 6.90% 11.12% 10.61% 10.31%<br>Operating Efficiency Ratio:<br>Efficiency ratio (GAAP) 64.28% 74.02% 67.04% 63.03% 57.53%<br>Adjustment for taxable equivalent yields (0.34%) (0.34%) (0.33%) (0.30%) (0.23%)<br>Adjustment for securities gains (losses) (0.04%) --- 0.07%<br>Adjustment for merger expenses (4.95%) (8.21%) (1.76%) (0.31%) 8.32%<br>Operating efficiency ratio (Non-GAAP) 58.95% 65.46% 64.95% 62.42% 65.56% |
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| Non-GAAP Reconciliations 26<br>($ in thousands) 2Q20 1Q20 4Q19 3Q19 2Q19<br>Tangible Common Equity<br>Shareholders' equity (GAAP) $ 343,488 336,200 $ 312,747 $ 306,040 $ 299,611 $<br>Less goodwill and other intangible assets 86,327 86,503 77,193 77,534 78,348<br>Tangible Common Equity (Non-GAAP) $ 257,161 249,697 $ 235,554 $ 228,506 $ 221,263 $<br>Average Tangible Common Equity<br>Average shareholders' equity (GAAP) $ 339,861 329,692 $ 308,772 $ 303,200 $ 296,570 $<br>Less goodwill and other intangible assets 86,484 80,370 77,400 78,222 78,564<br>Average Tangible Common Equity (Non-GAAP) $ 253,377 249,322 $ 231,372 $ 224,978 $ 218,006 $<br>Tangible Book Value per Common Share<br>Book value per common share (GAAP) $ 22.57 $ 22.09 $ 22.33 $ 21.93 $ 21.47<br>Adjustment due to goodwill and other intangible assets (5.67) (5.69) (5.51) (5.56) (5.61)<br>Tangible book value per common share (Non-GAAP)¹ $ 16.90 $ 16.40 $ 16.82 $ 16.37 $ 15.86<br>1. Book value per share is computed by dividing total stockholders’ equity by common shares outstanding. Tangible book value per share is computed by dividing total<br>stockholders’ equity, less goodwill and other intangible assets by common shares outstanding |
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| Investor Contact 27<br>Billy Carroll<br>President & CEO<br>865.868.0613<br>billy.carroll@smartbank.com<br>Miller Welborn<br>Chairman<br>423.385.3067<br>miller.welborn@smartbank.com<br>5401 Kingston Pike, Suite 600<br>Knoxville, TN 37919 |
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