SmartFinancial
Annual Report 2021

Plain-text annual report

BUILDING EXCEPTIONAL VALUE 2021 ANNUAL REPORT 15YEARS15YEARSSmartBank, known for its progressive and innovative style of banking, opened the doors of its first branch in 2007 with the vision of building a foundation of strong leadership, forward thinking and a sincere desire to provide incomparable client service. Fifteen years later, that very foundation is stronger than ever and SmartBank is continuing to Build Exceptional Value for Shareholders, Associates, Clients and the Communities we serve. 15YEARSWHAT A YEAR our company had in 2021. As you know, our mission is to create WOW experiences every day for our Shareholders, Clients and Associates and we delivered in 2021. We begin with a thank you for your support in helping our company accomplish another year of outstanding performance. We often talk about embracing change and this is yet another year in which we experienced tremendous positive change. There are multiple bright spots and highlights for us to recognize. Our performance in 2021 was strong with net income for the year totaling $34.8 million, equating to an operating earnings per diluted share of $2.39. We experienced outstanding growth in 2021 with total assets of $4.6 billion, an increase of over $1.3 billion year over year. We also increased our quarterly dividend by 20%, an important part of shareholder strategy. We continued the growth of our franchise with the acquisition of Sevier County Bancshares, in our East Tennessee region, during the third quarter. Additionally, we added a new line of business with the purchase of Fountain Equipment Finance earlier in the year. Our team is incredibly enthusiastic about both of these groups joining our journey as we continue to build a company with strong growth and diversified revenue streams. We also utilized the year to recruit and onboard 25+ senior bankers and to expand into several new markets including Auburn, Birmingham, Dothan, Montgomery and Mobile, Alabama as well as Nashville, Tennessee. The positivity with which these markets have accepted our company has far exceeded our expectations as they rapidly learn about SmartFinancial and the integrity LETTER TO OUR SHAREHOLDERS and work ethic of our team. This expansion of our footprint is showing outstanding results and will prove very valuable as we continue to scale this company. Our team remains diligent in growing the core earnings with a key focus on earnings per share. We now have a foundation in place we can leverage to accomplish those goals and look forward to watching SmartFinancial become even stronger. The future continues to shine brightly for SmartFinancial. Our resilient and growing markets coupled with our outstanding associates and loyal clients are to be thanked for another great year. We appreciate your continued support, and we commit to strive daily to continually improve. On behalf of our fellow board members, our management team and our associates, thank you for your loyalty to SmartFinancial and SmartBank. $4.6+ BILLION IN ASSETS 40 FULL SERVICE BRANCHES 551 ASSOCIATES Billy Carroll President & CEO SmartFinancial, Inc. Miller Welborn Chairman of the Board SmartFinancial, Inc. 15 YEARS | BUILDING EXCEPTIONAL VALUE 3 SMARTBANK BOARD OF DIRECTORS MILLER WELBORN Chairman BILL CARROLL Vice-Chairman BILLY CARROLL President & CEO VIC BARRETT Co-founder and Partner of The Track Recreation Center MONIQUE BERKE Vice President of Community and Corporate Engagement for the United Way TED MILLER Business Manager & Partner of Dolly Parton Productions STEVE TUCKER Principal in TriCo Resources and BTI Real Estate DAVID OGLE President and Co-founder of Five Oaks Development Group DR. KEITH WHALEY Founder of Whaley Family Eyecare OTTIS PHILLIPS Managing Partner of Phillips Properties Partnership and Eagle Properties JOHN PRESLEY Principal, Presley Consulting GEOFF WOLPERT Owner of The Park Grill and The Peddler Steakhouse 4 15 YEARS | BUILDING EXCEPTIONAL VALUE SMARTBANK SENIOR LEADERSHIP BILLY CARROLL President Chief Executive Officer BEVERLY ATCHLEY Senior Vice President Senior Deposit Operations & Administrative Officer BECCA BOYD Executive Vice President Chief People Officer CYNTHIA CAIN Executive Vice President Director of Financial Planning & Analysis GREG DAVIS Executive Vice President Chief Lending Officer KELLEY FOWLER Senior Vice President Director of Marketing & Public Relations RON GORCZYNSKI Executive Vice President Chief Financial Officer MONTY HATCHER CFP®, AAMS® Executive Vice President Director of SmartBank Investment Services DANIEL HEREFORD Executive Vice President Chief Information Officer “SMART LEADERSHIP is exhibited when a person becomes willing to put themselves last in line for the good of the whole and doesn’t personally prioritize recognition for accomplishing the task at hand. It is also demonstrated by caring more about others and less about the outcome. That’s not to say that outcome isn’t important, because in business it is! But the priority is the people.” - Miller Welborn SmartBank Chairman of the Board RHETT JORDAN Executive Vice President Chief Credit Officer TRAVIS LYTLE Senior Vice President Director of Community Development & CRA Officer GARY PETTY Executive Vice President Chief Risk Officer NATE STRALL Vice President Director of Strategy & Corporate Development BRYAN STUBBLEFIELD Senior Vice President Retail Sales 15 YEARS | BUILDING EXCEPTIONAL VALUE 5 THE BILL CARROLL LEGACY BANKER AWARD Bill Carroll, co-founder of SmartBank and current Vice-Chairman of the Board, was honored with the inaugural Bill Carroll Legacy Banker Award. This lifetime achievement award was given to Mr. Carroll in honor of his integrity, dedication, entrepreneurial spirit and business acuity as well as many of his other exceptional attributes. The Bill Carroll Legacy Banker Award will be presented in the future to other exemplary recipients. CORE PURPOSE CREATE “WOW” EXPERIENCES SMARTBANK CULTURE Bill Carroll with the inaugural Bill Carroll Legacy Banker Award 2021 “WOW” AWARD WINNER MIKE WOOD User Support Technician II, Jamestown, TN • Creating “WOW” experiences • Exhibiting over-the-top enthusiasm & positivity • Delivering exceptional, professional & knowledgeable service 6 15 YEARS | BUILDING EXCEPTIONAL VALUE Each month a “WOW” Award Winner is chosen based on submissions from peers. At the end of each year, associates vote amongst the monthly winners to select the overall “WOW” Award Winner for the year. Congratulations to Mike Wood for being named SmartBank’s 2021 “WOW” Award Winner! CREATING “WOW” EXPERIENCES CORE VALUES Act with Integrity Be Enthusiastic Create Positivity Demonstrate Accountability Embrace Change VISION In 2021, SmartBank was voted a Top Workplace by Associates for the fifth year in a row. Our vision is to build exceptional value for our brand and for our Shareholders, Associates, Clients, and Communities by delivering more than they think possible. MISSION We build exceptional value for our Shareholders by managing growth and maximizing profitability, return on investment, stock value, dividends, and liquidity. We build exceptional value for our Associates by fostering a more fulfilling environment that respects individual needs, establishes high expectations and recognizes achievement. We build exceptional value for our Clients by demonstrating incomparable care for their needs and increasing their financial wealth. We build exceptional value in our Communities by providing lasting solutions to their problems and protecting their greatest assets. We’ve achieved this through the integrity and innovation of our Associates and Directors – it’s the SmartBank Way. 15 YEARS | BUILDING EXCEPTIONAL VALUE 7 15 YEARS OF SMARTBANK A SMART START In 2007, SmartBank opened its doors to its first branch and corporate office in Pigeon Forge, TN. Within the next year, SmartBank also opened branches in Sevierville and Gatlinburg, TN. In 2009, SmartBank expanded into Knoxville, TN with its fourth branch. The next year Smartfinancial Inc. was formed as SmartBank’s parent company. By 2011, and only 5 years into this journey, SmartBank was able to organically grow its assets to over $325 million. Pigeon Forge, TN Chattanooga, TN FL Panhandle LET’S GROW In 2012, SmartBank completed its first acquisition (GulfSouth Private Bank) and expanded its footprint by adding branches in the Florida Panhandle. While continuing to scale markets in Knoxville, TN and Panama City, FL, SmartBank expanded into the Chattanooga, TN area through its 2014 announcement to merge with Chattanooga-based Cornerstone Community Bank and to operate under SmartFinancial, Inc. The combined company was fully integrated in 2016. In 2015, SmartFinancial Inc. announced trading on the NASDAQ Capital Market under ticker symbol: SMBK. By 2016, SmartBank reached a tremendous milestone and became a $1 billion company. 8 15 YEARS | BUILDING EXCEPTIONAL VALUE 2007200820092010201120122013201420152016Tuscaloosa, AL Cookeville, TN HERE WE GROW AGAIN In 2017, SmartBank expanded into Cleveland, TN through the acquisition of an FSG bank branch. Next, SmartBank went on to acquire Tuscaloosa, AL-based Capstone Bank, Tullahoma, TN-based Southern Community Bank and Maryville, TN- based Foothills Bank and Trust within two and a half years. The growth didn’t slow there - in 2019, SmartBank was named to Fortune’s annual 100 Fastest-Growing Companies List. In 2020, SmartBank continued its growth into Middle Tennessee with the acquisition of Progressive Savings Bank. 2021 was a year unlike any other. SmartBank opened new branches in Montgomery, Dothan, and Auburn, AL and added a new dynamic Wealth Management team to our Mobile, AL market. Additionally, SmartBank acquired Sevier County Bank, further scaling presence in one of its strongest markets, and also added an equipment financing division through the acquisition of Fountain Equipment Finance. During this time period, SmartBank was consecutively named a Top Workplace five years in a row. 15 YEARS | BUILDING EXCEPTIONAL VALUE 9 201720182019202020212021 SNAPSHOT OF SMARTBANK Successfully completed the acquisition and integration of Sevier County Bank, adding scale to one of our strongest markets in East Tennessee. Strategically scaled presence in the Nashville, TN MSA. Hired several Senior Relationship Managers and opened a new location in Murfreesboro. Heavy emphasis placed on growth in our Alabama market. Opened new branches in Auburn, Dothan, Montgomery and Mobile, AL as well as a loan production office in Birmingham, AL. Strengthened our coastal market’s presence, particularly in Mobile, AL with the expansion of our lending team and the addition of a wealth management division. 10 15 YEARS | BUILDING EXCEPTIONAL VALUE Successfully completed the acquisition of Fountain Equipment Finance. Awarded a Top Workplace designation for the fifth year in a row. Received a Bauer 5-Star Rating and Kroll Bond Rating of BBB+ Stable Outlook. Named to Fortune’s 100 Fastest-Growing Companies list for the second time in the last three years. 15 YEARS | BUILDING EXCEPTIONAL VALUE 11 SMARTBANK MARKETS FENTRESS PUTNAM MORGAN KNOX RUTHERFORD BLOUNT CUMBERLAND SEVIER COFFEE HAMILTON BRADLEY MIKE HONEYCUTT Regional President Northeast Tennessee MADISON TUSCALOOSA JEFFERSON DAVID SCOTT Regional President Middle Tennessee CLARK LEE MONTGOMERY BARRY WATSON Regional President Southeast Tennessee HOUSTON WASHINGTON MOBILE BALDWIN OKALOOSA ESCAMBIA LEON BAY ROBERT KUHN Regional President Alabama NATE SOMMER Regional President Coastal Market LEE SMITH Alabama Chairman JEFF WILLIAMS Regional President South Alabama 12 15 YEARS | BUILDING EXCEPTIONAL VALUE TENNESSEE SmartBank opened its first office in January 2007 in Pigeon Forge and has since expanded its footprint across several of the Southeast’s strongest and most desired markets. The Middle and East Tennessee regions are home to 24 of SmartBank’s 40 branches, with the company headquartered in Knoxville. Key commerce-attracting cities Chattanooga, Knoxville and Murfreesboro continue to thrive. In Chattanooga alone, Erlanger Health System, the Hamilton County Board of Education, and Blue Cross Blue Shield of Tennessee employ a combined 16,500+ TN residents. According to SmartAsset, Murfreesboro ranks as the #1 Boomtown for growth in the US (Dec 2021). Knoxville is home to Oak Ridge National Laboratory, Denso Manufacturing, Discovery Communications, and many others. BLOUNT COUNTY Alcoa Maryville BRADLEY COUNTY Cleveland COFFEE COUNTY Tullahoma CUMBERLAND COUNTY Crossville (2) FENTRESS COUNTY Jamestown HAMILTON COUNTY Chattanooga (2) East Ridge Hixson Ooltewah KNOX COUNTY Knoxville (3) MORGAN COUNTY Wartburg PUTNAM COUNTY Cookeville RUTHERFORD COUNTY Murfreesboro SEVIER COUNTY Sevierville (3) Pigeon Forge Gatlinburg Seymour SmartBank completed the integration of Tuscaloosa-based Capstone Bank in early 2018, adding eight branches spanning from Tuscaloosa through Southwest, AL and to the coast. In late 2018, SmartBank acquired Southern Community Bank, and added a branch in Huntsville. Alabama brings great banking opportunities with tremendous growth in several of the Southeast’s most desirable markets. Huntsville’s growth exceeds a population boom, with the area attracting several high-profile developments including Mazda Toyota Manufacturing, the MidCity District, Facebook’s Data Center and the newly built FBI campus on Redstone Arsenal. Tuscaloosa continues to prove its economic value with the successes of Mercedes-Benz U.S. International and top employer, The University of Alabama. Fairhope, a vibrant coastal town in Baldwin County, has long been known for its lovely parks and sweeping panoramic views of Mobile Bay, but is now also the fourth fastest-growing city in Alabama (Aug 2021). ALABAMA BALDWIN COUNTY Fairhope CLARKE COUNTY Jackson Thomasville HOUSTON COUNTY Dothan JEFFERSON COUNTY Birmingham (LPO) LEE COUNTY Auburn MADISON COUNTY Huntsville MOBILE COUNTY Mobile MONTGOMERY COUNTY Montgomery TUSCALOOSA COUNTY Tuscaloosa (2) Northport WASHINGTON COUNTY Chatom McIntosh FLORIDA OKALOOSA COUNTY Destin BAY COUNTY Panama City ESCAMBIA COUNTY Pensacola LEON COUNTY Tallahassee (LPO) SmartBank’s expansion into the Florida Panhandle by way of its first acquisition of GulfSouth Private Bank in 2012 has proven that growth in this thriving market continues to be strong with lots of opportunities for continued success. SmartBank operates full services branches in Pensacola, Destin and Panama City, and a Loan Production Office in Tallahassee. Northwest Florida is home to six major military installations, all with aviation/aerospace-related missions which have huge impact on the industries, R&D and talent pool in the region. The Panhandle also includes strong tourism markets which account for one of the state’s biggest economic drivers. 15 YEARS | BUILDING EXCEPTIONAL VALUE 13 CORPORATE SOCIAL RESPONSIBILITY At SmartBank, we take great pride in our commitment to giving back to our community. This value defines SmartBank and acts as a driving force behind serving beyond financial needs. COMMUNITY PARTNERS SmartBank supports numerous charitable causes in all of our markets with a primary focus on these three areas: financial literacy, environmental stewardship and affordable housing. PARK PARTNERS DONATIONS SmartBank is committed to building exceptional value in our communities by providing lasting solutions to their problems and by protecting their greatest assets. Since 2009, SmartBank has donated nearly $200,000 to organizations who support local National Parks. PAYCHECK PROTECTION PROGRAM In 2021, SmartBank continued with Round 2 in the Paycheck Protection Program (“PPP”) and originated 1,801 loans totaling $138.4 million. 14 15 YEARS | BUILDING EXCEPTIONAL VALUE FINANCIAL HIGHLIGHTS $4.6B Record high total assets of $4.6 billion, net loans of $2.7 billion, and deposits of $4.0 billion $34.8M Net income of $34.8 million 13.06% Annual loan growth of $311.2 million, or 13.06% $25.56 Book value of common stock, up 8.12% in 2021 0.11% Asset quality was outstanding with nonperforming assets to total assets of just 0.11% 15 YEARS | BUILDING EXCEPTIONAL VALUE 15  2021 FINANCIAL SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION The following selected historical consolidated financial data as of and for the years ended December 31, 2021 and 2020 is derived from the audited consolidated financial statements of the company. (Amounts are in thousands, except ratios, per share data.) YEARS ENDED DECEMBER 31, 2021 2020 $125,232 11,838 133,394 1,633 111,761 23,949 91,391 44,319 9,529 $117,613 16,747 100,866 8,683 92,183 15,426 76,719 30,890 6,558 $ 34,790 $ 24,332 $ 2.23 2.22 25.56 19.26 0.24 16,803 15,573 15,699 $ 1.63 1.62 23.64 17.92 0.20 15,107 14,955 15,019 SUMMARY OF OPERATIONS Total interest income Total interest expense Net interest income Provision for loan losses Net interest income after provision for loan losses Non-interest income Non-interest expense Income before income taxes Income tax expense Consolidated net income SHARE AND PER COMMON SHARE DATA: Basic earnings per share Diluted earnings per share Common equity per common share outstanding Tangible book value per share Dividends per common share Actual common shares outstanding Weighted average common shares outstanding Diluted weighted average common shares outstanding 16 15 YEARS | BUILDING EXCEPTIONAL VALUE YEARS ENDED DECEMBER 31, 2021 2020 BALANCE SHEET DATA: Average total assets Average gross loans, net of deferred loan fees Average interest-earning assets Average deposits Average interest-bearing deposits Average interest-bearing liabilities Average total shareholders’ equity SELECTED FINANCIAL RATIOS: Return on average assets Return on average equity Average equity to average total assets Efficiency ratio Net interest margin1 Net interest spread2 CAPITAL RATIOS:3 Total Capital (to Risk-Weighted Assets) Tier 1 Capital (to Risk-Weighted Assets) Common Equity Tier 1 Capital (to Risk-Weighted Assets) Tier 1 Capital (to Average Assets) ASSET QUALITY RATIOS: Net charge-offs to average loans Allowance to period end loans Allowance for loan losses to non-performing loans Non-performing assets to total assets OTHER DATA: Branches Loan production offices Operation centers Total associates $ 3,839,110 2,535,006 3,521,653 3,304,907 2,463,161 2,586,487 387,688 0.91% 8.97% 10.10% 66.54% 3.24% 3.12% 12.29% 11.66% 11.66% 8.23% 0.02% 0.72% 607.03% 0.11% 40 3 1 551 $3,063,435 2,289,612 2,812,480 2,481,985 1,910,703 2,127,208 341,170 0.79% 7.13% 11.14% 65.97% 3.61% 3.41% 13.57% 12.78% 12.78% 9.58% 0.03% 0.77% 315.16% 0.31% 35 1 1 475 Table Assumptions 1 Net interest margin is the result of net interest income calculated on a tax-equivalent basis divided by average interest earning assets for the period. 2 Net interest spread is calculated as the yields realized on interest-bearing assets less the rates paid on interest-bearing liabilities. 3 For SmartBank 15 YEARS | BUILDING EXCEPTIONAL VALUE 17 INVESTOR RELATIONS SMARTFINANCIAL, INC. ANNUAL SHAREHOLDERS’ MEETING Thursday, May 26, 2022 at 3:00 pm SmartBank - Bearden 5401 Kingston Pike, #600 | Knoxville, TN 37919 Meeting contact: Frank Hughes (frank.hughes@smartbank.com) STOCK SYMBOL Nasdaq Capital Market: SMBK ELECTRONIC VOTING To vote electronically, please go to www.smartfinancialinc.com. You may also download a copy of the 2021 SmartFinancial, Inc. Annual Report. STOCK TRANSFER AGENT INFO American Stock Transfer & Trust Company, LLC 6201 15th Avenue | Brooklyn, NY 11219 800.937.5449 ANALYST COVERAGE Keefe, Bruyette & Woods, Inc Raymond James & Associates Hovde Group Stephens Inc. Piper Sandler Companies Janney Montgomery Scott LLC D.A. Davidson & Co. INVESTOR RELATIONS CONTACT Ron Gorczynski EVP, Chief Financial Officer 5401 Kingston Pike, Suite 600 Knoxville, TN 37919 865.437.5724 ron.gorczynski@smartbank.com MARKET MAKERS Virtu Financial Raymond James & Associates Credit Suisse Jonestrading Wells Fargo Securities JP Morgan UBS Investment Bank Merrill Lynch Morgan Stanley Citigroup Global Markets SMARTFINANCIAL, INC. 5401 Kingston Pike, #600 Knoxville, TN 37919 866.290.2554 18 15 YEARS | BUILDING EXCEPTIONAL VALUE www.smartbank.com Forward-Looking Statements This annual report 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 effects of the COVID-19 pandemic and related variants on the Company’s business and financial results and conditions, are not historical in nature and can generally be identified by such words as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “may,” “estimate,” and similar expressions. All forward-looking statements are subject to risks, uncertainties, and other factors that may cause the actual results of SmartFinancial to differ materially from future results expressed or implied by such forward-looking statements. Such risks, uncertainties, and other factors include, among others, (1) risks associated with our growth strategy, including a failure to implement our growth plans or an inability to manage our growth effectively; (2) claims and litigation arising from our business activities and from the companies we acquire, which may relate to contractual issues, environmental laws, fiduciary responsibility, and other matters; (3) the risk that cost savings and revenue synergies from recently completed acquisitions may not be realized or may take longer than anticipated to realize; (4) disruption from recently completed acquisitions with customer, supplier, employee, or other business relationships; (5) our ability to successfully integrate the businesses acquired as part of previous acquisitions with the business of SmartBank; (6) risks related to the acquisition of Sevier County Bancshares, Inc. (“SCB”); (7) the risk that the anticipated benefits from the acquisition of SCB 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 and related variants; (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 and related variants; (15) the impact of the COVID-19 pandemic and related variants 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 related variants; 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. Non-GAAP Financial Measures We report our results in accordance with United States generally accepted accounting principles (“GAAP”). However, management believes that certain non-GAAP performance measures used in managing the business may provide meaningful information about underlying trends in its business. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, our reported results prepared in accordance with GAAP. 

Continue reading text version or see original annual report in PDF format above